National Tax Liaison Group

Draft minutes for the meeting of 6 December 2001

Venue: Australian Taxation Office
Conference Room 2, 5th floor, East Tower,
2 Constitution Ave, Canberra.

Meeting commenced at 10.00am.

Attendees:

Anna Carey

LCA

Alice McCleary

TIA

Keith Clissold

ATMA

Margaret MacDonald

ICAA

Michael D'Ascenzo

ATO

Peter McDonald

TA

Michael Dirkis

TIA

Gavan Ord

NIA

Paul Drum

CPAA

Brian Sheppard

ICAA

Jennie Granger

ATO

Ross Seller

LCA

Paul Hockridge

CPAA

Tony Stolarek

ICAA

Barry Low

TIA

Robert Warnock

NTAA

David Martine

Treasury

   

Apologies:

Bob Duncan

ATMA

Bill Thompson

LCA

Michael Carmody

ATO

   

Secretary:

Denise English

ATO

John Lindell

ATO

Guest Speakers:

Mark Jackson

ATO

Murray Crowe

ATO

Robert Puckridge

ATO

   

Professional bodies represented:

ATMA

Association of Taxation and Management Accountants

CPAA

CPA Australia

ICAA

Institute of Chartered Accountants in Australia

LCA

Law Council of Australia

NIA

National Institute of Accountants

NTAA

National Tax and Accountants Association

TA

Taxpayers Australia

TIA

Taxation Institute of Australia

Agenda Summary

1 Introduction and confirmation of minutes of the 6 September 2001 meeting. 4

2 BTR Consolidation measure 5

3 Status of legislation and announcements 6

4 National review of standards for the tax profession 7

5 PAYG 8

5.1 PAYG threshold 8

5.2 Review of PAYG and document lodgment rules 10

6 General Interest Charge (GIC) 12

6.1 Deductibility of GIC 12

6.2 Timing of deductibility of GIC 13

7 Running Balance Accounts (RBAs) 14

8 Taxation administration 16

9 Private binding rulings (PBRs) 18

9.1 Transparency and accountability 18

9.2 Register of private binding rulings 18

10 Tax litigation 20

11 Partnership reconstitutions 22

12 Commercial debt forgiveness rules and third party guarantees 24

13 Decision in Orica case 25

14 Excessive remuneration and s 109 ITAA 1936 26

15 Ultimate beneficiary statements (UB) 27

16 Substitute accounting periods (SAP) 28

17 eCommerce 29

18 Minutes of ATO interpretative forums 30

19 NTLG work program and management issues 31

19.1 Status of ATO initiatives for greater practical assistance to tax practitioners 31

19.2 Report on outstanding action item from 6 June 2001 32

19.3 Report on action items from 6 September 2001 33

19.4 ATO Tax Practitioner Forum Report 40

19.5 Capital Gains Tax (CGT) Subcommittee Report 41

19.6 Electronic Commerce Consultative Forum Report (the e-Forum) 42

19.7 Fringe Benefits Tax (FBT) Subcommittee Report 44

19.8 Foreign Source Income (FSI) Subcommittee Report 45

19.9 GST Rulings Panel Report 46

19.10 PAYG Working Party Report 47

19.11 Superannuation Industry Liaison Group Report 48

19.12 Tax Practitioner Industry Partnership Report 49

19.13 Transfer Pricing Subcommittee Report 50

19.14 International Tax Rulings Panel Report 51

19.15 Litigation Panel Report 52

19.16 Part IVA Panel Report 53

19.17 Public Rulings Panel Report 54

19.18 Tax Treaties Advisory Panel Report 55

20 Other Business 56

20.1 Tax losses and problems with the Continuity of Ownership Test (COT) 56

20.2 Tax losses and situations where a company finds it difficult to prove continuity of ownership 56

20.3 Continuity of ownership and interposed trusts 57

20.4 Resolution of the outstanding issues 58

20.5 Lodgment deadlines, Substituted accounting periods and release of draft forms 59

20.6 External panel member 59

21 Next Meeting 60

Summary of Attachments

Attachment 1 - Accounting Working Group articles 62

Attachment 2 - List of products on Accounting Working Group website 66

Attachment 3 - Schedule of changes & timeline 67

Attachment 4 - International developments impacting on eCommerce 68

Attachment 5 - Initiatives to provide greater practical assistance to tax practitioners – status as at 23 November 2001. 73

Attachment 6 – Project plan 78

Attachment 7 - Treasurers press release of 8 October 2001. 79

Attachment 8 - Taxation Determination TD2001/26 80

Attachment 9 - Briefing note: Losses – compliance with continuity of ownership test 84

Attachment 10 - Consolidated Groups – An update (presentation by Mark Jackson) 85

Attachment 11 - Report from the CGT Subcommittee meeting of 28 November 2001 94

Agenda Items

[Agenda items are provided by the professional bodies and the ATO, including the many joint ATO/practitioner/taxpayer liaison forums operating across Australia. They are set out with the description of the item and the status/response from the ATO or the professional bodies.]

[_Toc476373035][_Toc2051280] 1 Introduction and confirmation of minutes of the 6 September 2001 meeting.

Meeting Discussion : Second Commissioner D’Ascenzo opened the meeting, advising the Commissioner was not able to attend. He confirmed both the Commissioner’s and the ATO’s commitment to working together to improve the operation of the tax system, implement the government’s tax reform initiatives and to build relationships that will serve as a platform to move forward into the future.

The minutes of the previous meeting were accepted with minor amendment to be provided by the professional bodies.

2 [_Toc2051281] BTR Consolidation measure

Presentation by Mark Jackson, First Assistant Commissioner Consolidations. Progress on design and consultation for the Consolidation measure.

Meeting Discussion : A copy of Mark Jackson’s presentation is at Attachment 10.

Mark’s presentation highlighted a number of issues in relation to the approach to design of the consolidation legislative package, including:

· designing legislation to reflect the government’s intent for the measure

· breaking down the design goals to three simple statements (see Slide 3 of Attachment 10)

· working hard to achieve ‘improve the efficiency of business’ and ‘make it simple for business’ and integrity in the measure (‘provide a systemic solution to risks to the integrity of the taxation of wholly owned groups’) should be consequential

· not looking for automation although some may happen

· not being bound by existing ATO systems although some may be used

· separating transaction and assurance processes

· using the Compliance Model as the basis of taxpayer management.

Mark also advised members the ATO remains confident of both delivery on 1 July 2002 and the ATO’s capability in the first year of operation.

Professional bodies advised they were very pleased with the management of the consultation process, noting the issues register assists with the transparency of the process. Mark noted there are risks exposing government policy proposals, even in confidential situations. Professional bodies were concerned, however, that entities will soon need to make irreversible decisions in relation to grouping. The ATO advised that guidelines, explanatory memorandum and as much of the legislation as possible are expected to be released in the new year, however, the timing of release will be a decision for government.

3 [_Toc2051282] Status of legislation and announcements

a. Would the ATO please advise on the proposed legislative program of the tax legislation introduced into, but not passed by, Parliament prior to the calling of the November 2001 election?

b. Would the ATO please advise on the proposed implementation program for tax changes announced before the election, including but not limited to:

(i) structured settlements for personal injury compensation applicable from 26 September 2001;

(ii) taxation of compensation payments (income which is repaid) applicable to assessments for the 1996-97 and later years of income; and

(iii) changes affecting work-in-progress.

Response: The ATO is unable to provide the advice sought. The Government decides and sets the priorities for the legislative program.

In settling the legislation program the priorities of the Cabinet, Prime Minister, Treasurer and Assistant Treasurer will be determined having regard to the significance of measures. This will include legislation introduced but not passed prior to dissolution of Parliament, but does not necessarily mean those measures will have the highest priority.

Once the priority for measures is set, the ATO will prepare a ‘bid’ (basically putting measures into bills) on behalf of the Treasurer and Assistant Treasurer for consideration by the Parliamentary Business Committee. This bid is essentially a request for drafting resources and parliamentary time for introduction, debate and passage. A minister’s bid may not be successful as the Parliamentary Business Committee considers bids and allocates priorities to bills across all portfolios.

Meeting Discussion : Second Commissioner D’Ascenzo confirmed that determining legislative priorities is a matter for government. The professional bodies were concerned consultation on a number of issues had commenced but had not progressed for, in some cases, a number of months. David Martine representing Treasury advised that the government was still committed to consultation on proposed legislation. Where government agrees, available information to help provide greater clarity and certainty may be provided through the NTLG minutes. Second Commissioner D’Ascenzo also noted the benefits to practitioners of more transparent scheduling of the legislative agenda, but this is another matter for government to consider.

Professional bodies were looking for some certainty around the simplified imputation measure as this will have an impact on corporate franking policy and possibly the stock market. David Martine referred to the Treasurer’s press release in March 2001 as the latest indicator. Second Commissioner D’Ascenzo noted the ATO needs government approval to continue consultation and agreed to pass on the professional body concerns to government.

4 [nrstp][_Hlt532003309][_Toc2051283] National review of standards for the tax profession

A draft timetable to resume the national review has been under consideration since March 2001. At the last NTLG meeting in September 2001 the Commissioner advised that this implementation timetable was not yet finalised because of some difficulties caused by the restrictions imposed by the Government's legislative timetable and the need to resolve the penalties’ issue. At the September 2001 meeting it was verbally indicated, however, that an ATO response on the matter would be forthcoming shortly. No response has yet been received. In addition, in a separate context, the ATO has recently flagged the possibility of ‘limited license’ agent registrations whereby agents might be registered for certain return-type preparation only.

Against this background, would the ATO provide an update on how it proposes to progress this matter, including the timing of a the finalisation of the timetable to resume the national review?

Response: To be discussed at the meeting.

Meeting Discussion : Second Commissioner D’Ascenzo noted the Commissioner’s disappointment at not being able to attend the meeting, particularly to discuss this item. The Commissioner has asked that the NTLG form a working party to further discuss initiatives and progress of a regulatory framework for the tax profession. Second Commissioner D’Ascenzo suggested the working party could scope out issues and set priorities for that work. He also noted this work fits well with the practical support work currently being implemented by Assistant Commissioner David Diment, and that the ultimate package should include initiatives to further support tax agents.

Action Item NTLG0112/1 : Professional bodies to provide nominations to PALU for participation in a working party to progress further ATO support initiatives and regulatory framework issues for the tax profession.

Professional bodies were concerned the ATO had moved from seeking administrative solutions to developing legislative options. Second Commissioner D’Ascenzo advised the ATO is continuing to look for administrative responses. Professional bodies were also pleased with the ATO’s position, reaffirming the role of tax agents in the community. They were nevertheless concerned when issues raised by the National Review of Standards were resolved there may be few tax agents remaining because of an ageing demographic. Second Commissioner D’Ascenzo noted the ATO shared this concern and was conscious of the need to do more to support tax agents, particularly given that approximately 70 per cent of taxpayers used tax agents. Jennie Granger confirmed that getting as many different perspectives into the debate, including from agents with differing work practices, would be very helpful to achieve a workable outcome for all practitioners.

Professional bodies questioned the ATO about rumoured proposals to close the Tasmanian Tax Agents Board. Jennie Granger advised that the ATO is in the process of consolidating board secretariats, however, the Tasmanian board has not ceased. Secretariat functions of the board have merged with the Victorian Tax Agents Board secretariat. Jennie Granger also spoke about the ATO’s interest in exploring the option of forming a single national board and noted a drop in overall tax agent registrations last year, but little change in that part of the market where agents had greater than 100 clients.

Action Item NTLG0112/2 : ATO to provide further information in relation to age profiles for incoming and outgoing tax agent registrations for last year.

Jennie Granger advised the ATO would be repeating the technology visit program with tax agents in March and April 2002, planning to visit approximately 400 tax agents.

5 [_Toc2051284] PAYG

[_Toc2051285] 5.1 PAYG threshold

At the 2 November 2001 meeting of the ATO Tax Practitioner Forum, in response to a question from the professional bodies about a review of the current PAYG threshold, the ATO responded that this was a matter for Government (ATPF Agenda Item 3.6).

The professional bodies accept that ultimately any change in the PAYG threshold is a legislative matter for the Government. However, this does not obviate the concerns of the professional bodies of the need to address this issue.

The current level of the PAYG threshold remains as one of the factors contributing to an increase in the compliance burden on small tax payers and their tax agents. At a bare minimum, this threshold needs to take into account any escalating effect of market factors such as inflation, to ensure that these types of tax payers are not caught up with unnecessary compliance costs. There may well be need to increase the threshold even beyond this type of increment to mitigate against compliance costs.

It is critical, therefore, that this issue is considered by the NTLG and that this forum is properly informed of relevant data and facts to enable this issue to be properly assessed, and if necessary, progressed with a recommendation to Government.

Would the ATO please provide information on the economic impact of raising the PAYG threshold from:

· $8,000 to $9,000?;

· $8,000 to $10,000?;

· $8,000 to $11,000?;

· $8,000 to $12,000?

This would include number of tax payers impacted at each level of change and the impacts upon revenue at each level.

Response: The ATO is prepared to work with the professional bodies to identify areas in tax administration where community compliance costs can be reduced. The ATO is proposing to present to the February NTLG meeting its findings relating to issues raised by the professional bodies concerning the PAYG threshold along with an examination of opportunities to expand access to the annual instalment option under PAYG. At that time, there will be a clear indication of any trends that occur with annual elections in the second year of the new tax system. Most taxpayers will have made their choice in respect of their 2001-02 PAYG obligations.

The ATO view is that any move to expand annual payment options within the current financial year will result in complexity and confusion. In conducting any review, it will be important to focus on and identify the impact of the change in due dates that apply to annual instalment payments for the 2002-03 year and beyond. For that year, the annual payment will shift from the April-June quarter to October of the next financial year.

Meeting Discussion : Murray Crowe, Assistant Commissioner Policy and Practice in the Client Account Management (CAM) business line attended for agenda item 5.

Murray advised the ATO continues to refine PAYG administrative systems. He noted the ATO has implemented steps to minimise the number of taxpayer/ATO interactions and very small value interactions.

The ATO agreed to table any available work in early 2002 relating to PAYG thresholds, and is committed to look openly at any changes that could improve administrative arrangements. All members agreed that any discussion should take place in the PAYG Working Party and reports be presented to both the ATPF and NTLG.

5.2 [_Toc2051286] Review of PAYG and document lodgment rules

In spite of a number of administrative changes being made to the PAYG system and to the general document lodgment rules (for example, lodgment of Dividend & Interest Schedules by 31 October 2001), there remain a number of administrative requirements which have limited administrative benefit and which continue to impose unnecessary compliance costs on the community.

a. Will the ATO be undertaking a review of the PAYG and the general document lodgment systems in light of developments in the Integrated Tax Design Forum with a view to streamlining administrative procedures and thereby reducing unnecessary compliance costs/demands on practitioners and tax payers?

Response: The ATO commenced formulating a comprehensive program of practitioner lodgment requirements early this year and produced the 2001-02 tax agent lodgment program in early June 2001. This process, as well as the process for 2002-03, engages a number of external stakeholders and is managed through the ATPF Lodgment Working Party (LWP).

Although the program is targeted toward practitioners, the LWP also canvasses views of the large sector through the Corporate Tax Association, and considers lodgment arrangements as they affect the entire community. Thus, the impact of all lodgment requirements, including PAYG instalment obligations, will be taken into account in formulating the 2002-03 program.

The ATO will be streamlining arrangements for a number of taxpayers who elect to report their obligations via the ‘instalment amount’ method through the use of remittance advices in the place of activity statements. If the instalment amount is not varied, the taxpayer need only make the payment by the due date. The activity statement need not be returned.

The LWP will be reviewing a draft of the 2002-03 lodgment program in its December meeting. It is expected that the program will be finalised in March-April 2002.

A number of other innovations aimed at reducing compliance costs are being considered and continue to be discussed within the ATPF Activity Statement Taskforce.

b. What is the process for reviewing tax return design in light of developments in the Integrated Tax Design Forum with a view to reducing the amount of information supplied in the tax return and using other sources of information such as published accounts?

Response: The ATO has established the Forms Design Team (FDT), a corporate forum to evaluate and endorse the annual changes to all return forms and to establish the future direction for information collection through return forms and exploring alternatives. The FDT has representatives from all business lines who undertake a key co-ordination function to ensure all proposed changes to return forms are evaluated in a structured process. This process is evolving based on learnings from previous years and will set the approach for 2003 and beyond.

Changes to return forms are evaluated against key design principles established for forms design. Overall, the aim is to minimise taxpayer and operational costs. The key design principles must be considered and adhered to, if not, comprehensive reasons must be given. The ATO has principally collected data using information supplied on ‘return’ forms. The ATO recognises that the range of information sources is expanding, with less reliance placed on collecting data from ‘return’ forms.

The need for information to be collected should also be balanced against a risk management process. In addition, the mechanism for collecting information must also be closely evaluated.

Meeting Discussion : Professional bodies were concerned about document lodgment requirements, particularly dividend and interest schedule lodgment requirements.

The ATO is trying to understand the notions of family sets and groups, in much the same way as a tax practitioner might deal with a client set in their practice. The ATO continues to look at reasoning for information collection and how it takes place, but is conscious that the cost of customisation can be prohibitive. Jennie Granger advised the ATO will be discussing forms issues with a number of practitioners in Newcastle, Parramatta, Moonee Ponds and Seymour next week.

Professional bodies suggested that the individual return form needed review at a fundamental level. Jennie Granger advised that feedback received from the community indicated the form was better received than media reports suggested. She also noted the ATO was putting greater emphasis on moving to an electronic environment, noting a substantial increase in eTax usage to 13 per cent of self preparers. The Tax Help program had successfully used eTax this year and 1600 ATO staff used it after eTax was made available on its internal personal computer (PC) network. This successful network trial could mean future availability for other large organisations who would allow staff to prepare their income tax returns on internal networked PCs.

Professional bodies were concerned people who used eTax did not have the benefit of professional advice and therefore make errors completing returns. Member feedback had indicated that some eTax users had incorrectly completed returns.

Professional bodies suggested that the membership of the TaxPack consultation group could be broadened to include other stakeholders in the product. The bodies also asked about consultation processes for other return form types, as there did not appear to be a similar consultation process in place. The ATO agreed to consider these matters further.

Action Item NTLG0112/3 : ATO to consider widening the TaxPack consultation group membership.

Action Item NTLG0112/4 : ATO to report on the consultation process for return types other than TaxPack.

Professional bodies suggested practitioners would benefit from early release of draft forms to assist with planning for ATO information requirements.

Jennie Granger also advised that the ATO is currently evaluating the telephone lodgment pilot conducted in South Australia and will share the findings with the ATPF.

Second Commissioner D’Ascenzo noted it is expensive for the ATO to offer a range of lodgment channels and there needs to be ongoing consideration whether it is viable in the future to make all possible lodgment channels available or whether it is more sensible for the community to limit the choice of channels. He noted overseas experience in this regard.

6 [_Toc2051287] General Interest Charge (GIC)

[_Toc2051288] 6.1 Deductibility of GIC

Some notices of amended assessment which include an amount of General Interest Charge also include a statement that this amount of GIC is tax deductible in the year in which it is paid’ . This is inconsistent with s 25-5(1)(c) of the ITAA 1997 which allows taxpayers a tax deduction for the GIC in the year in which it is incurred .

Will the ATO give an assurance that the necessary change will be made to these notices to reflect correctly the deductibility of the GIC under the ITAA 1997?

Response: The ATO agrees the General Interest Charge (GIC) can be claimed as a tax deduction in the year the GIC is incurred. The wording on all relevant ATO notices will be reviewed for accuracy and any required changes will be addressed as a priority.

Meeting Discussion : Murray Crowe advised the ATO was seeking to change the year 2000 notice of amended assessment to reflect the correct interpretation, as this was the notice giving incorrect advice.

6.2 [_Toc2051289] Timing of deductibility of GIC

An important issue is the timing of the tax deduction for the GIC. Section 25-5(1) of the ITAA 1997 provides that the GIC is deductible when it is incurred. Section 8AAE of the Taxation Administration Act 1953 provides that the GIC is due on a ‘day to day’ basis. Therefore, the GIC would appear to be incurred from the time the tax shortfall amount should have been paid. The decision in the Layala Enterprises Pty Ltd case supports this interpretation of the legislation.

Would the ATO confirm that the tax deduction for the GIC is available on a daily accruals basis rather than in the year in which the assessment, which shows the amount of GIC, is issued to a taxpayer?

Response: Under s 204(3) of the Income Tax Assessment Act 1997, if any of the tax which a person is liable to pay remains unpaid after the time by which the tax is due to be paid, the person is liable to pay the GIC on the unpaid amount for each day in the period that:

a. starts at the beginning of the day by which the tax was due to be paid; and

b. finishes at the end of the last day on which, at the end of the day, the tax remains unpaid.

In the case of an amended assessment where the liability is increased:

· the GIC is calculated from the due date of the original assessment;

· the liability for the GIC is incurred on the day that the amended assessment is made;

· the due date for tax payable under the amended assessment, where the original return was lodged on time, is 21 days after a notice of assessment is given to the taxpayer;

· once the debt is established but not paid by the due date, GIC will accrue daily on that outstanding amount; and

· the GIC on that unpaid debt will be incurred on a daily basis.

For example, if an amendment issues on 1 May 2001 including GIC for the period 7 November 1997 to 1 May 2001, a taxpayer would be entitled to claim the GIC in the tax return for the year ended 30 June 2001. If the debt notified on 1 May 2001 was unpaid at 30 June 2001 the taxpayer would also be able to claim the GIC from the date for payment specified in the notice of amended assessment to 30 June 2001.

The decision in Layala Enterprises Pty Ltd (in liq) v Federal Commissioner of Taxation 98 ATC 4858, which considered when a deduction was allowable under section 51(1) of the Income Tax Assessment Act 1936, was founded on a proper construction of state payroll tax legislation enacted by the Western Australian Parliament. The critical point was whether liability for payroll tax arose immediately after, and as a direct consequence of, the payment by an employer of taxable wages or not until an assessment of payroll tax was made by the Commissioner of State Taxation. Whilst in that case the Full Federal Court held that the critical point was the payment of the wages, the ATO view is that the critical point for the incurrence of the GIC is the making of the assessment which quantifies the liability.

Meeting Discussion : Murray Crowe advised this matter is outlined in the ATO’s Receivables Policy at Chapter 93, and agreed to take any additional comments out of session. Murray also advised the ATO was unable to detail this information on notices of assessment following a request from professional bodies. Professional bodies suggested other avenues to communicate the matter including the PAYG Working Party, Accounting Working Group or in the finalised PS 2001/D1.

Action Item NTLG0112/5 : ATO to consider alternative channels to disseminate meaning of the description of GIC on a notice of assessment or amended assessment.

7 [rba][_Toc2051290] Running Balance Accounts (RBAs)

The operation of Running Balance Accounts continues to concern the members of the professional bodies. At the meeting of the NTLG in September this year, the ATO identified four key operational and administrative issues concerning the operation of the Running Balance Account system.

Would the ATO please provide an update on the progress to date in resolving these operational and administrative issues?

Response: Running [_Hlt532002843]Balance Account (RBA) administrative issues have been raised in a number of ATO forums. The ATO Tax Practitioner Forum (ATPF) formed the Accounting Working Group (AWG) to manage RBA issues for the ATO and work with professional bodies to resolve identified problems. Any further issues relating to RBAs should be directed to either:

· the ATPF;

· relevant professional body representatives on the AWG; or

· Assistant Commissioner Greg Topping (chair of the group).

Significant advances have been made in addressing issues raised by practitioners and professional bodies about RBAs through the AWG.

The AWG has issued a series of four articles highlighting these significant advances (see Attachment 1) and has extensive information and solutions for practitioners on RBA issues on ATOassist (see Attachment 2–products and their website addresses).

Ongoing changes have been made to RBA statements including improved statement descriptions, particularly to transfer postings. A consultation package is currently with practitioners regarding proposed statement formats, with additional information available from the ATO website .

The ATO recently implemented its refund offset policy, detailed in the updated ATO Receivables Policy located on the ATO website at http://law.ato.gov.au/atolaw/browse.htm?toc=03:ATO%20Guidelines%20and%20Policy:ATO%20Receivables%20Policy

With certain exceptions, the ATO will not offset amounts deemed ‘uneconomic to pursue’.

Those exceptions are:

· when there is a CSA or Centrelink ‘garnishee’;

· when the taxpayer has a poor compliance record (this criterion is being further developed); or

· if the debt is subject to legal recovery action.

The ATO will not offset against an amount that is due but not yet payable unless the debt and credit are of the same tax type. For example, income tax refunds may be offset against income tax debts not yet payable or the debt is a BAS amount appearing on an activity statement. CSA or Centrelink ‘garnishees’ are the exception to this rule.

The ATO has also addressed in the short term, concerns expressed by professional bodies and practitioners about the provision of a payout figure on RBA statements through the introduction of GIC thresholds.

A practitioner priority infoline (13 72 86) has been operating in enhanced form since 20 August 2001. Queuing arrangements have been streamlined with dedicated technical and procedural support to reduce the number of calls requiring transfer to other areas of the ATO.

A schedule outlining system changes is available on the ATO’s website . The timeline for those changes is provided at Attachment 3.

The ATO has also released an ‘account history’ template in response to the profession’s requests for account information. This is an interim measure to meet present needs for detail to allow reconciliation of accounting transactions. RBA functionality will be enhanced in the longer term to remove the need for this template. This account history is additional to the current availability of a payout statement.

Meeting Discussion : Professional bodies commended the work of the Accounting Working Group (AWG), particularly noting the progress that has been made and significant improvement of the relationship. Murray Crowe advised implementation of some significant improvements was tracking well for 1 July 2002 and it remains a top priority for the ATO.

Professional bodies asked for more details concerning the ‘account history’ template as referred in the response. The ATO agreed to provide further information at the next meeting.

Action Item NTLG0112/6 : ATO to provide further information about ‘account history’ template referred to in the ATO’s response.

8 [_Toc2051291] Taxation administration

The tax system has gone through two challenging years of transition in the wake of tax reform. The tax landscape is more than ever a constantly changing one and tax professionals continue to seek clarity and certainty in understanding and applying the tax law. In looking forward, we face a range of anticipated tax changes which have yet to be released and a number of other major measures which are in an advanced, yet still incomplete state (for example, Consolidations and the Tax Value Method). During this period, the professional bodies welcome and support the ATO’s flexible approach to managing the transition from the old to the new.

a. In view of still current tax reform program, would the ATO please advise whether and for now long the ATO will take a concessionary and flexible approach to the implementation of and compliance with the changed tax regime, including the administration of the penalty regime?

b. In this context, in implementing its announced 2001-2002 compliance program, what guidelines will the ATO be providing to its auditors for dealing with transitional year issues (that is, if an audit is conducted of a transitional year, what guidelines will be issued to ATO auditors to take into account any concessionary or flexible approach which has been adopted by the ATO in implementing the tax law in question)?

Response: The ATO focus through the transition period is to help those taxpayers needing assistance and to take appropriate action where taxpayers ignore their responsibilities or take deliberate steps to avoid paying the correct amount of tax.

The ATO has applied the principles set down in the Practice Statement PS 2000/9 to penalties for false and misleading statements and tax shortfall amounts. The practice statement deals with the transitional period up to 30 June 2001 and states:

If the taxpayer made a genuine attempt to try and provide correct information, the penalty will be remitted in full. Similarly, if the error arose because it was reasonable to conclude that the taxpayer was not in a position to be able to understand the law, then the penalty will also be remitted in full. Where it is clearly evident that the taxpayer intentionally understated tax or knowingly overclaimed a credit the penalty will not be remitted.’

The application of these principles has been extended to the second transition year. The Commissioner noted in his speech to the Australia-Israel Chamber of Commerce on 22 August 2001: “the transitional period for implementing the new tax system is not yet over. Accordingly we will be extending the supportive approaches to penalties into the current year. At the same time, we have made it clear that we will be firm with those who fail to make a genuine attempt or, worse still, set out to deliberately avoid their responsibilities. This includes people who carry over poor compliance behaviour from the past or cases of repeated non-compliance in the face of a clear explanation of what is required. …. With one year’s experience for everyone, we expect instances of genuine error to decrease this year.”

This extension of the transition period has been documented in draft Practice Statement PS 2001/D1, issued for external consultation through the ATPF, TPIP and NTLG.

The principles contained in both PS 2000/9 and draft PS 2001/D1 apply equally to GST issues and income tax matters as embodied in PAYG (withholding) and PAYG (instalments).

In addition, all GST compliance staff have been informed of the fact sheet ( NAT 4700 ) entitled Correcting GST mistakes. The key elements of the fact sheet have been recognised in the draft Practice Statement PS 2001/D1 where it states:

“The ATO recently released this determination in Fact Sheet ‘Correcting GST Mistakes’ (NAT 4700). It allows a taxpayer to correct a shortfall amount (by correcting the next BAS) if the total of the GST errors for the tax period is within the correction limits outlined in the following table. It also allows a correction to be made to decrease the net amount payable for the tax period, for example, to correct a mistake in classifying a GST-free supply as taxable, but only if the taxpayer has reimbursed the GST to the recipient and cancelled the tax invoice issued in relation to that supply.

Annual turnover Correction limits

Less than $20m Less than $5,000

$20m to less than $100m Less than $10,000

$100m to less than $500m Less than $25,000

$500m to less than $1b Less than $50,000

$1b and over Less than $300,000

The concessions in the Fact Sheet are broader than the determination covered by section 17-20 and are allowed by the Commissioner exercising the discretion to remit any penalty on shortfall amounts. The remission of penalties will only apply to mistakes that are genuine and reasonable. The policy on correcting GST mistakes will be reviewed before 31 December 2002.”

Draft Practice Statement PS 2001/D1 proposes that where compliance officers encounter a taxpayer who has made a ‘genuine mistake’, the taxpayer will be allowed to correct the mistake without penalty which is in line with the principles contained in the Correcting GST mistakes fact sheet.

ATO field staff are also assisted implementing the policies described in PS 2000/9, PS 2001/D1 and related documents by internal systems modified to apply those policies.

Similarly, the ATO has published its position on penalties where taxpayers have made a reasonable attempt to report their PAYG instalment income but subsequently find they have made an understatement. The fact sheet ' Correcting PA [_Hlt531427476] YG Instalment Income mistakes ' outlines the penalty and interest concessions that apply in the first two years of the PAYG system.

Meeting Discussion : The ATO’s work on penalty issues is appreciated by professional bodies, however, professional bodies noted feedback from their members indicating that frontline ATO staff were not fully aware of the ATO’s policies. Professional bodies reminded the ATO of the need for vigilance to avoid potentially unnecessary actions by practitioners or taxpayers to resolve disputed penalties.

The ATO thanked professional bodies for their assistance in developing both practice statements. ATO staff have been asked to apply the Draft PS 2001/1 as if it were in place, with the final practice statement expected to issue shortly.

9 [_Toc2051292] Private binding rulings (PBRs)

[_Toc2051293] 9.1 Transparency and accountability

In the interests of ensuring public accountability for the accuracy of the content of the register of PBRs in the spirit of the Sherman Report recommendations, and the way in which this could impact on a tax payer using the register, the professional bodies are concerned that transparency and accountability should be paramount in administering the register. In spite of these concerns, the current register is not transparent because there is no mechanism/system design which enables a user to determine accurately whether or not a PBR is consistent/inconsistent with other PBRs in the Register.

Would the ATO please advise how it proposes to ensure the integrity of the data base by enabling the ready identification of inconsistent rulings on the register?

Response: The register is not intended to be a tool to be used by taxpayers and their representatives. A private ruling or administratively binding advice published on the register can be relied upon only by the person on whose behalf the ruling or advice was sought. The register is intended primarily to improve transparency and integrity by publishing edited versions of written binding advice and by providing a mechanism that enables taxpayers to check the authenticity of their private ruling(s) or administratively binding advice.

Meeting Discussion: No discussion.

[_Toc2051294] 9.2 Register of private binding rulings

In spite of the report by the ATO to the NTLG meeting in September this year, the professional bodies are nevertheless still concerned that the current system for the publication of these rulings is inadequate. The current structure of the ATO’s register of PBRs does little to improve the clarity of the current PBR system.

Would the ATO please comment on what action, if any, it proposed to take to address the following issues:

· the register cannot be accessed from the ATO Assist site but rather, it must be located using the ATO Assist search engine. This is unsatisfactory and a direct link to the register should be placed on the ATO Assist site;

· once the register is accessed, its organisation and layout creates unnecessary further confusion for users which prevents proper access to the data base. For example: PBRs are merely listed on the register by their number rather than by topic/keywords. The register should include a search engine facility, which can be used to search Rulings for keywords and phrases;

· the content of the register is not effectively linked to the general search engine on the ATO Assist site. It is recommended that the content of the Register be linked to the ATO Assist search engine; and

· it is difficult to find out what PBRs have been published without scrolling through each of the current 156 pages of the register. It should be possible to list only published rulings.

Response: The ATO is currently examining ways of improving the structure of the register.

Meeting Discussion: Second Commissioner D’Ascenzo noted that any further work on the register of private binding rulings will be subject to a cost/benefit analysis and will not include development of a new search facility. Professional body member feedback had brought these issues about the register to the attention of the bodies. Professional bodies also asked for detail on how to access the register on the ATO’s web site.

Second Commissioner D’Ascenzo reiterated previous advice provided to the NTLG that the ATO Interpretative Decisions database is the better research site.

[Subsequent information: For research purposes, the register of ATO Interpretative Decisions (ATOIDs) is available at http://law.ato.gov.au/atolaw/browse.htm?toc=02:ATO%20Interpretative%20Decisions , and provides good search facilities and is generally more useful than the register of private binding rulings. The register of private binding rulings can be accessed on the ATO’s web site. (http://www.ato.gov.au/rba/content.asp?doc=/content/individuals/5957.htm).]

10 [_Toc2051295] Tax litigation

The professional bodies are concerned with the manner in which some tax litigation is being pursued and conducted by the ATO as a litigant.

This overall concern is about the Commonwealth as a model litigant. While it is understood that the ATO accepts it should behave as a model litigant in the conduct of its litigation, there are many reported incidences of this not occurring. In particular, some taxpayers have been required to prove or argue a point which is clearly not in dispute and/or costly delaying tactics have been engaged in.

It is not disputed that the ATO generally behaves as a model litigant and it is appreciated that whether or not this occurs in a particular case will not always be easy to decide. Nevertheless, the professional bodies are of the opinion that there is a need to establish a formal system of independent review to receive and deal with any complaints with the manner in which litigation is conducted. Such a system of receiving and dealing with complaints will make for a more transparent system overall, and it will give taxpayers more confidence that their cases will be dealt with fairly.

a. The professional bodies recommend that the ATO introduced a formal system of independent review to receive and deal with any complaints with the manner in which litigation is conducted. It is requested that this proposal be included in the agenda for discussion.

Response : A formal system of independent review for model litigant complaints has existed since 1 September 1999. In addition, the Ombudsman has always been able to consider complaints about the conduct of agencies.

The Attorney-General has issued Legal Service Directions setting out the framework and requirements for the performance of Commonwealth legal services and, in particular, for the conduct of litigation by Commonwealth agencies. The directions bind all Commonwealth agencies and all providers of legal services to Commonwealth agencies, whether the providers are in-house or external, public sector or private sector. These directions can be found at http://law.gov.au/aghome/legalpol/olsc/policies.html .

The Office of Legal Service Coordination (OLSC) in the Attorney-General’s Department assists the Attorney-General in monitoring compliance with the directions. This includes considering allegations that an agency has failed to comply with the Directions on the Commonwealth’s obligation to act as a model litigant, which is Attachment B to the Legal Service Directions. Further information about the role of OLSC and OLSC contact details can be found at the above web address.

In addition to this formal system of independent review, complaints about the ATO’s conduct of litigation may also be made to the Ombudsman. The ATO also has a number of internal complaint-handling processes, such as the Problem Resolution Service. Complaints may also be made to the ATO Solicitor for investigation.

The ATO notes the suggestion by the professional bodies that:

· there are many reported incidents of failure by the ATO to act as a model litigant;

· the ATO has required taxpayers to prove points not in dispute; and

· the ATO has engaged in costly delaying tactics.

The ATO would appreciate further details of these incidents.

b. As a matter of policy, will the ATO please explain why it pursues costly legal action in some cases (for example, Payne’s Case) when it would have been simpler, more cost effective and not inconvenienced the tax payer litigants by making a case directly with the Government to change the legislation in the first place?

Response : Litigation is one means by which the ATO pursues clarification of the law for the benefit of the community. Sometimes it will be necessary to pursue a case on appeal in order to obtain a clear statement of the law on a particular issue. The ATO test case litigation program exists to ensure that taxpayers are not disadvantaged simply because their case happens to raise an issue of broad significance to the community. Details of the test case funding are available at http://ato.gov.au/content.asp?doc=/content/Professionals/test_case_program.htm . In addition, since 1986 the ATO has had a general policy of paying the party–party (that is, not the full) costs of individual taxpayers where the Commissioner appeals from the AAT.

Meeting Discussion : Second Commissioner D’Ascenzo asked professional bodies to provide examples, following general claims the ATO had not acted as a model litigant.

Action Item NTLG0112/8 : Professional bodies to provide examples, if available, of ATO’s non-compliance with the requirements of a model litigant.

Professional bodies suggested that ATO’s interpretation in rulings may need clarification on the issue of travel between a place of work and business where one is the taxpayers home, particularly as a result of the decision in Payne’s case. Second Commissioner D’Ascenzo agreed to consider the clarity of the ATO’s view in this regard. Professional bodies also suggested the ATO consider communicating with taxpayers and the profession if the government announcements following Payne’s case were not legislated prior to 30 June 2002.

Action Item NTLG0112/9 : ATO to consider the need for further information on the ATO’s interpretation of travel from two places of work where one of those places is also the taxpayer’s home.

11 [_Toc2051296] Partnership reconstitutions

At the 2 November 2001 meeting of the ATO/Tax Practitioner Forum, in the context of a question about partnership reconstitution and ABNs, it came to the attention of the professional bodies that the ATO was taking a position on the legal consequences of a partnership reconstitution which will have significant ramifications beyond the issuing of ABNs (ATPF Agenda Item 3.15)

From this meeting of the ATPF, it is apparent that the ATO does not accept that a clause in a partnership agreement which provides for the continuity of the partnership entity in the event of a change in the membership/shares of the partnership, will have that legal effect. This is contrary to what the professional bodies had understood to be the ATO’s position on this issue. There is an urgent need for the ATO to clarify its stance on the legal effect of these partnership continuity clauses.

a. Would the ATO please provide the NTLG with copies of any advices which the ATO has prepared setting out its view on the legal status of these clauses (for example, from the Tax Counsel Network)?

b. If there are no written advices, would the ATO please clarify its current position on these clauses?

c. If the ATO does not accept the intended effect of a partnership continuity clause, would the ATO please advise on the following issues occasioned by the reconstitution of a partnership:

· How does the ATO propose resolving issues of joint and several liability particularly in relation to the GST on such issues as the admission or retirement of a partner, the sale of a partnership interest, and the sale of assets of a partnership?;

· How will the ATO treat work-in-progress?;

· What will be the CGT implications?;

· What will be the effect on trading stock, including livestock accounts for primary producers?;

· Will the ATO be pursuing partnerships for any outstanding tax debts arising from a partnership reconstitution, and if so, what mechanisms will be put in place to ensure that this is carried out in an equitable manner?

Response: The partnership reconstitution issue has been debated in various forums including the ATO Tax Practitioner Forum (ATPF) and the GST Rulings Panel. A consistent ATO approach is being formulated to balance legislative requirements and the implications of a technical dissolution of a partnership.

The GST Public Rulings Panel has considered the ATO’s current approach to reconstituted partnerships. The panel confirmed that a change in the partnership results in a change in the entity and therefore a new Australian Business Number (ABN) and tax file number (TFN) is required. The ATO is seeking a workable administrative solution to this issue, acknowledging the serious implications to business, especially large accounting and legal firms.

As an interim administrative measure, the ATO will continue to apply its current approach. When a written agreement incorporating a provision for a change in the membership or shares of the partnership (substituted partners) exists, the ATO will treat the partnership as a continuing entity.

In addition, irrespective of the terms of the partnership agreement, the ATO will treat reconstituted partnerships with at least 20 partners, provided the change represents less than 10 per cent change in the beneficial interest of the partnership, as a continuing entity. The same ABN and TFN will apply to that partnership after the change of interests.

A practice statement dealing with registration, GST and other aspects of a change in the reporting entity will be prepared. During this process, the ATO will consult with professional bodies on issues raised by NTLG members at this meeting.

Bill Powell, Assistant Commissioner of Registry Division, is the ATO contact for specific concerns about the implications of the ATO’s policy on reconstituted partnerships.

Meeting Discussion : The professional bodies are seeking the status quo to be maintained in the ATO’s administration of changes to partnerships, concerned there may be significant consequences if the ATO’s approach changes. The bodies noted the 10 per cent change in the beneficial interest of the partnership mentioned in the ATO response appeared to be a change from current practices, and there had already been a change in the ATO view. Second Commissioner D’Ascenzo suggested professional bodies and Bill Powell, Assistant Commissioner Registrations could discuss some of the practical issues to progress resolution. Second Commissioner D’Ascenzo also noted potentially complex difficulties will need to be addressed to avoid any unnecessary compliance burden for affected taxpayers, particularly where there is no clear beneficial outcome.

Professional bodies were concerned the issue has taken some time to reach a point where efforts are being made to resolve the problems first identified at the ATPF. Second Commissioner D’Ascenzo advised members the ATO would keep them informed on progress of a discussion paper or practice statement covering partnership reconstitutions and steps the ATO expects to take to resolve the situation.

Action Item NTLG0112/10 : Professional bodies to be advised of:

· expected release of draft practice statement or discussion paper on partnership reconstitutions; and

· steps the ATO expect to take to progress the resolution of the issue.

12 [_Toc2051297] Commercial debt forgiveness rules and third party guarantees

This item seeks clarification of the interaction between the commercial debt forgiveness rules in Schedule 2C of the ITAA 1936 (‘CDF’) and guarantees from third parties to satisfy debts in the event of default by the debtor.

In particular, confirmation is sought on the following propositions:

a. A debt can be forgiven for CDF purposes even if a third party guarantor pays the debt in full. In other words, to avoid the CDF rules consideration must flow from the debtor.

b. The CDF rules aim to reverse the tax benefit received by a debtor when a commercial debt is forgiven – so that if a debtor does not provide any consideration and is not deemed to have provided market value consideration, in respect of the forgiveness – the CDF rules still have prima facie application for the debtor;

c. Even if the debtor can utilise the ‘deemed market value consideration’ rule, a net forgiven amount can still arise. This is because the debtor will be deemed to pay consideration equal to the market value of the debt at the ‘forgiveness time’. The market value of the debt may be lower at the forgiveness time (than at the debt creation time) because, for example, the debtor is insolvent or does not have the same capacity to repay the debt. That is, the market value of the debt would be its recoverable value rather than its face value.

Response: The ATO considers the most appropriate way of responding to this matter is to issue public rulings dealing with the propositions about which clarification is sought. Accordingly, these issues will be added to the public rulings program.

NTLG members are requested to advise the level of priority that should be given to the preparation of rulings dealing with these issues, having regard to the potential number of taxpayers who may be affected by these issues and the degree of difficulty taxpayers are having complying with the law in the absence of the Commissioner’s opinion about the way in which the relevant provisions apply.

Meeting Discussion : Professional bodies believe it to be important for the ATO view to be provided quickly, particularly in the current economic climate, noting there are strong opposing views held within the profession. The professional bodies are concerned that placing the issue on the public rulings program will mean a lengthy delay before any resolution can be achieved. While there was no firm view on a more appropriate method of resolution, any option to have a quicker response time is preferred.

The ATO agreed to contact a professional body representative to discuss resolution of the issue.

13 [_Toc2051298] Decision in Orica case

In November 1998, the NTLG CGT Subcommittee prepared a paper on the implications of the decision in the Orica Case. This report was tabled at the meeting of the NTLG held on 10 March 1999. It is evident in reports to the NTLG that the CGT subcommittee continued to consider the impact of this case. In the minutes for the NTLG GST Subcommittee 14 June 2001 at item 6.3, it was noted that the ATO’s position in relation to the application of the Orica Case remained ‘unchanged’ and that the ATO will progress issues ‘as they arise on a case by case basis’. It is also the understanding of the professional bodies that the ATO was considering holding a special summit to discuss the impact of the case in August 2000; this summit never eventuated.

a. In view of the lapse of time since the issue of the original discussion paper and post–Orica developments in the law and ATO’s interpretation of it, and the appeal against the decision in Orica on timing issues, would the ATO please indicate the timeframe within which we can expect a public ruling which will clarify the law in this area?

b. From a more general perspective, the above question also highlights the problematic relationship between the administration of tax and the need for clarity whilst a tax matter is before a court or tribunal. Would the ATO please advise the professional bodies of its policy in relation to issuing rulings when there is a case before a court or tribunal on a tax matter?

Response: This was referred to the CGT subcommittee meeting 28 November 2001. A report from the subcommittee will be provided at the meeting.

Meeting Discussion : A response from the CGT Subcommittee meeting was provided at the meeting ( Atta [_Hlt2048943] chment 11).

Second Commissioner D’Ascenzo advised the ATO is seeking a log of real issues from the Orica case from the subcommittee along with other opportunities to identify specific issues. He noted it is unlikely there will be any general ruling covering all the perceived impacts of the decision in the case, but suggested it possible to issue taxation determinations addressing specific issues if there was benefit for affected taxpayers.

Professional bodies noted there was some difficulty identifying the impacts because of the nature of the case.

14 [_Toc2051299] Excessive remuneration and s 109 ITAA 1936

Section 109 of the ITAA 1936 empowers the Commissioner to deny a private company a tax deduction for what could be best described as being excessive remuneration paid to a shareholder or associate and to treat that amount as an unfranked dividend. Under the CGT small business concessions, it is possible for a private company to pay an ETP (or direct the ETP into a complying superannuation fund) of a ‘controlling individual’ of up to $500,000. In some cases a level of superannuation contribution of this magnitude might be regarded as being ‘excessive’.

In these types of cases (which can extend to say age based superannuation contributions), would the ATO formally confirm what is understood to be its practice which is, that even if section 109 might otherwise operate, the ATO will not seek to apply it where the amount of the remuneration is within a statutory limit?

Response: Other than IT 2621, there is no current authoritative statement of the ATO view on the application of section 109 in these types of cases. Section 109 will not necessarily apply. The ATO is aware of situations in relation to alienation of personal services income.

In many cases that have been finalised as the result of the Alienation of Personal Services Income Project, Part IVA of the ITAA has been used to strike down arrangements where the sole or dominant purpose is to obtain a tax benefit.

In some of those cases, a service provider working through an interposed closely held entity has paid a salary to an associate and has also made aged based superannuation contributions on behalf of that associate pursuant to section 82AAC ITAA 1936.

Those payments, when considered as a remuneration package (salary and superannuation) for the duties actually performed by the associate, have in some instances been considered to form part of a scheme under which less income flows to the principal service provider and thereby providing them with a tax benefit. Therefore Part IVA has been applied to strike down those arrangements.

Some assessments issued as a result of that action are currently in dispute. Should they proceed before the AAT or the courts the ATO may also argue, in the alternative, that section 109 could be applied to limit superannuation contributions paid in this manner, although a decision has not yet been made to take this course of action.

The ATO cannot provide a guarantee that section 109 will not apply in some cases. The ATO expects that it would not usually apply, however, to establish if there is a need for more authoritative statements on the law in this area the ATO would be happy to discuss particular situations.

The ATO view could be formally established by a public ruling on the particular issues. Further details can be supplied to Stuart Forsyth, Assistant Commissioner, Small Business email address: stuart.forsyth@ato.gov.au or telephone: 07 3213 5979.

Meeting Discussion : Professional bodies suggested the $500 000 limit would not be excessive when Parliament had agreed to this amount in the legislation. A professional body representative had contacted Stuart Forsyth and will continue to follow the matter up on behalf of the members.

Action Item NTLG0112/13 : Professional bodies and ATO to continue to discuss issues around excessive remuneration and s 109 ITAA 1936 and work toward issuing a ruling on the matter.

15 [_Toc2051300] Ultimate beneficiary statements (UB)

For the 2000-2001 and subsequent income tax years, paragraph 9 of Practice Statement PS 2001/12 indicates that trustees are to indicate on their trust return if they are notionally required to lodge a UB statement under the income tax legislation. However, assuming that the trustee does not have to lodge of a UB statement because the trustee does not have a UB non-disclosure tax liability for the year or the Commissioner has not requested a UB statement, it is not clear from the Practice Statement whether the trustee has to prepare and keep a UB statement on file in order to substantiate any indication on the return about their obligation (or not) to lodge a UB statement.

If a trustee is not required to lodge a UB statement, would the ATO please clarify when (or if) it is necessary for a trustee to prepare and keep a UB statement on file?

Response: It is the Commissioner’s view that PS 2001/12 does not require the preparation of UB statements except when they need to be lodged.

If the Commissioner does request a UB statement, a reasonable time of at least 28 days will be given for preparation and such further time as is reasonable in the circumstances for the trustee to comply.

During the close consultation with NTLG members on this practice statement it was accepted that cost of compliance was a significant issue.

A purpose of PS 2001/12 is to limit these costs to the extent possible using administrative measures whilst still ensuring that the original intent of legislation was achieved. Explicit recognition of these costs is found at paragraph 17 of PS 2001/12.

Meeting Discussion: No discussion.

16 [_Toc2051301] Substitute accounting periods (SAP)

a. Would the ATO advise on its policy with respect to the issuing of SAPs and reviewing SAP applications?

Response: The ATO grants substituted accounting periods (SAP), in accordance with IT 2360 . The ATO is also aware that some tax practitioners have expressed a concern as to the its interpretation of IT 2360.

The ATO is investigating certain issues in relation to the approval process for granting SAPs.

The ATO is developing a document to clarify certain issues in the current SAP policy. Subsequently, the ATO will consult with the profession to develop a common understanding of this policy.

SAP applications are reviewed in line with the conditions imposed in the original granting of the SAP, as outlined in IT 2360.

b. It has been suggested that the ATO is conducting an internal meeting in January 2002 to look at and progress SAP applications. Would the ATO please confirm whether or not this is the case, and if so, will there be an opportunity for the professional bodies to be involved?

Response: There is currently no meeting planned for January 2002 to ‘look at and progress SAP applications’. If a meeting is scheduled in the new year, the ATO will invite interested parties to participate in that meeting. Professional bodies will at that stage be able to submit their particulars to the secretariat, who will contact them with the relevant details.

Meeting Discussion : Professional bodies suggested the ATO had adopted a more rigorous approach to granting SAPs and were concerned this may cause administrative problems, for example, where grouping is allowed for common SAPs under the thin capitalisation rules. Second Commissioner D’Ascenzo agreed to arrange a meeting between the ATO and professional bodies to articulate and discuss the issues.

Action Item NTLG0112/11 : ATO to arrange a meeting with professional body representatives to discuss issues relating to granting taxpayers substituted accounting periods.

17 [_Toc2051302] eCommerce

It is 12 months since the Commissioner last briefed the NTLG on international developments impacting on eCommerce, in particular the matters before the OECD.

Would the ATO please provide an update on eCommerce international developments?

Response: See Attac [_Hlt531485670] hment 4.

Meeting Discussion : Professional bodies were particularly interested in the OECD’s future work program and refining the description of ‘place of effective management’.

18 [_Toc2051303] Minutes of ATO interpretative forums

At present, the ATOassist’s records of the minutes for the NTLG and the other various subcommittees of the NTLG are incomplete. For example, it is noted that the CGT Subcommittee minutes of 9 June 1999 and 7 June 2000 are the only minutes included on the website, according to the link provided to the CGT Subcommittee on the Contents page of the ATOassist site. Would the ATO please advise:

a. Why all the minutes from these forums are not made available on ATO Assist?

b. When will ATOassist be updated to include all outstanding minutes for these forums?

c. Is the ATO prepared to leave all these minutes on the website indefinitely? If not, why not?

Response: Publication of NTLG and ATPF working party minutes has been the responsibility of the respective committees. The ATO has recently undertaken to work with those committees to achieve greater transparency, where appropriate, by publishing minutes, outcome documents and other material relating to issues discussed. There will be instances where it would be inappropriate for the record of confidential discussions to be published.

The ATO’s web publication process is particularly stringent to maintain its accessibility for people with disabilities. Committee secretariats are at varying points in terms of making minutes available on the website. Some committee chairs will be discussing the publication of minutes or meeting outcomes at future meetings.

The ATO believes that publishing all previous minutes of committees would require substantial resources. The ATO is proposing therefore, that where committees decide to publish previous minutes, those minutes will be from the 2000 year onwards. Details of how to obtain minutes prior to any published on the web will be included at the committee homepage. Committees may choose to publish prior to this date, but this decision will be made on perceived need and availability of resources.

Where minutes are published, the ATO will leave those minutes on the website until they are no longer required; some minutes may remain available indefinitely.

Meeting Discussion : Professional bodies were concerned about the approach to confidential issues discussed at meetings and published on the ATO’s web site. They suggested the minutes note it was a confidential matter, briefly describe it and note that discussion took place without including detail. This would alert readers that these matters were being discussed with the ATO and were not being forgotten or ignored.

19 [_Toc2051304] NTLG work program and management issues

[_Toc2051305] 19.1 Status of ATO initiatives for greater practical assistance to tax practitioners

The status of ATO initiatives providing greater practical assistance to tax practitioners as at 23 November 2001 are provided at Attachment 5.

Meeting Discussion : Jennie Granger spoke about a number of matters relating to the ATO’s work to provide greater practical assistance to practitioners, including:

· increasing the number of opportunities to deal with the ATO electronically

· viewing client account information

· email contact with ATO business areas

· self help opportunities especially calculators

· patterns and what are the issues, for example - PAYG and Running Balance Account interaction

· telephone access to ATO services and assistance

Jennie Granger also noted the ATO’s learning from implementation of Family Tax Benefit access through the tax system, including differences in policy, administration and information requirements of other government agencies. Professional bodies urged the ATO to work with Centrelink to produce statements of payments for 2002 income tax purposes.

Professional bodies remained concerned that telephone access to the ATO remained an issue with practitioners, particularly in relation to transferring calls and escalation to the appropriate business area when the issue was outside the expertise of the call centre operator. Jennie Granger advised that Assistant Commissioner Rona Mellor is conducting a project reviewing the ATO’s telephone services and Assistant Commissioner (Tax Practitioner Group) David Diment represents the Personal Tax Line on the steering committee. David will also be establishing an advisory group consisting of professional bodies and practitioners for telephone issues affecting the profession and feeding this to the project team.

The ATO also noted the issue of ‘limited licence’ tax agent registration mentioned in Attachment 5 (Broadcast November 2001– Item 4) will be considered by the proposed working party dealing with the National Review of Standards for the Tax Profession. Professional bodies noted this as an important issue, particularly for practitioners with high individual return clients and new entrants.

19.2 [_Toc2051306] Report on outstanding action item from 6 June 2001

NTLG0106/2 : ATO to report on response times to private binding ruling requests to the December 2001 NTLG.

Status: The ATO continues to bed down the provision of advice process.

Following independent advice, the ATO has implemented processes to improve the level of integrity and transparency of the advice process. This approach has been supported by the Australian National Audit Office. One significant feature is the public Register of Private Binding Rulings, which is the subject of item 9 on the agenda.

As part of the provision of advice (PoA) initiative, the ATO is also aiming to gain greater leverage from our one-on-one interactions with taxpayers by ensuring that, where appropriate and subject to privacy and secrecy constraints, a summary of the advice provided (known as an ATO Interpretative Decision (ATOID)) is placed on a publicly available reference database. The aim is to have a comprehensive database of decisions to complement our suite of products ranging from public rulings (our flagship) to brochures, all designed to assist the community to understand its obligations under the law via self help.

The ATO anticipates a significant benefit from this aspect of the PoA process, once it is bedded down, will be a lift in the quality and timeliness of advice as staff preparing responses will have access to more comprehensive precedent.

Change processes often come with some initial cost - in this instance timeliness. As alluded to at the June 2001 meeting, the ATO continues to monitor the situation and explore opportunities to improve.

For instance, the ATO is currently considering the concentration of decision making for those cases where a precedent decision does not exist. Once made, the precedent decision will be captured as an ATOID and that database will continue to grow, providing for a quicker turnaround when a similar issue arises at a later time.

As at 31 October 2001, for all binding advice cases issued under the PoA process (from 1 April 2001 for income tax and FBT and from 1 July 2001 for GST), 62 per cent of responses are meeting Taxpayer Charter Standards. However, the ATO is aware that there are a number of instances where it would have been appropriate to negotiate a revised date for reply with the taxpayer, where the ‘stopped the clock’ option when further information has been requested was not used, and where there was a delay in entering the finalised date on the system. All these have contributed negatively to the above performance result .

The ATO is improving performance monitoring with some new methods to gather data planned for implementation by the end of December 2001.

Meeting Discussion : Professional bodies were concerned the ATO’s provision of advice regime may stifle open communication between the ATO and taxpayers or their advisers.

The ATO and professional bodies both conceded that there had been some advice provided in general conversations in earlier years that may have been misleading, particularly if taken out of context. Second Commissioner D’Ascenzo advised the ATO is adding to its provision of advice capability by extending the ‘centre of expertise’ concept to the Office of the Chief Tax Counsel within the ATO. This development will take time to engineer and implement, but is designed to add to the provision consistent and accurate advice to taxpayers and their advisers.

19.3 [_Toc2051307] Report on action items from 6 September 2001

NTLG0109/1: The ATO will provide NTLG members with an outline of major milestones and timelines for RBA systems changes

Status: Refer to age [_Hlt531484761] nda [_Hlt532002840] item 7 .

Meeting Discussion : No discussion.

NTLG0109/2: ATO to provide to the NTLG a copy of the draft document outlining prioritisation process of topics in the public rulings program.

Status: The ATO is currently working in a number of areas to respond to the recommendations made by the Australian National Audit Office (ANAO) in its report into the ATO’s rulings systems (see [_Hlt532003191] Attac [_Hlt532003283] hment 6).

The ATO is undertaking a project to review the way in which the input of the NTLG is sought and how that input can be more effectively used to help set the priorities of the Public Rulings Program. To assist, the ATO is seeking the nomination of 1 representative from each professional body represented at the NTLG to liaise with the Rulings Unit during December on the best way NTLG input can be captured and fed into the process for prioritising public rulings. Nominations can be provided to PALU by telephoning John Lindell (02 6279 7428) or sent via email to inbpalu@hotkey.net.au .

Meeting Discussion : No discussion.

NTLG0109/3: The ATO to examine the impact of the decision in Payne’s case on the current rulings and legislation and advise the NTLG.

Status: On 8 October 2001 the Treasurer issued a press release, No 78, advising that the government will amend the income tax legislation in relation to transport expenses incurred in travelling between two places of unrelated income earning activity. The amendment will maintain the deductibility of transport expenses as stated in the Commissioner’s published rulings and TaxPack. The amendment will take effect from the 2001-2002 income year.

A copy of the press release is at Att [_Hlt532003272] ach [_Hlt531483577] ment 7.

Meeting Discussion : No discussion.

NTLG0109/4: The ATO to enquire with the Treasurer’s office in an attempt to determine the relevance of the February 1999 date in relation to the treatment of non-commercial loans.

Status: To be discussed at the meeting.

Meeting Discussion : Second Commissioner D’Ascenzo was aware the Commissioner had raised this at government level but was not aware of the outcome of the conversation in relation to this issue. Members will be kept informed of any further advice on the matter.

NTLG0109/5: Professional bodies to advise the ATO of issues in relation to ‘non-genuine’ leases previously covered in the withdrawn TD 94/20.

Status: No further action required.

Meeting Discussion : No discussion.

NTLG0109/6: The ATO to advise the NTLG at the December meeting on possible wider dissemination of material and application of penalties in relation to Division 243.

Status: Division 243 amendments have been referred to in tax return form guides for all relevant income years beginning with 1998/99 income year. Taxpayers who entered into transactions affected by the amendments between the application date and royal assent and lodged returns in that period, calculating taxable income on the basis of the existing provisions in the law, may request an amendment or self amend as appropriate to their circumstances. Tax shortfall or incorrect return penalties would not be imposed in these circumstances.

The ATO is drafting a practice statement on the penalty issue.

Meeting Discussion : Comments relating to the practice statement can be provided to Paul Hogan (email: paulp.hogan@ato.gov.au).

NTLG0109/7: Professional bodies to provide the ATO with a list of reform measures likely to have the greatest practical impact and due to be implemented on 1 July 2002.

Status: The professional bodies have advised that the top 3 issues for the profession are Consolidations, simplified imputation and national standards. An update of consultation is also being sought and is currently with the ATO for comment.

Meeting Discussion : No discussion.

NTLG0109/8: The ATO to follow up the development of a subsequent practice statement about imposition of penalties applicable to the second transition year of the new tax system.

Status: The ATO released a draft of the practice statement for remission of penalties in the 2001-02 year on 2 November 2001 to members of the ATO Tax Practitioners Forum, and the Tax Practitioners Industry Partnership Forum. It was also circulated to members of the NTLG on 12 November 2001. Comments on the practice statement were sought by 23 November 2001, and the ATO expects to release the final version of this in the very near future.

Meeting Discussion : No discussion.

NTLG0109/9: ATO to write to professional bodies and ATPF members to propose a way to progress implementation of recommendations from the NRSTP.

Status: Refer to agen [_Hlt532003306] da item 4 .

Meeting Discussion : No discussion.

NTLG0109/10: ATO to investigate quicker release of ATO media releases to professional bodies.

Status: Completed. PALU acknowledges this and undertakes to pass on media releases on the same day as issued.

Meeting Discussion : No discussion.

NTLG0109/11: ATO to provide the NTLG with further advice in relation to the ATO’s risk reviews on taping of conversations and the relevance of the Audit Guidelines.

Status:

Audit Guidelines
The Corporate Consultative Committee recently established a sub group, consisting of ATO and industry representatives, to focus on compliance and client relationships. Implementation of the Cooperative Compliance Model (‘the model’) is a key outcome for the sub group.

The client risk review (CRR) process, currently being used by the Large Business and International (LB&I) business line to give effect to the model, was discussed by the subcommittee, including the experiences of both corporates and ATO officers. Improvements are being made as a result. The subcommittee will continue to monitor the effectiveness of the CRR in delivering the intent of the model. The application of the audit guidelines to the CRR process will be addressed by the subgroup. The NTLG will be advised of the outcome.

Taping of Conversations
Taping of conversations is not a part of the CRR process and has only been discussed in one instance. The ATO recognises taping a conversation is inconsistent with the spirit of cooperation outlined in the model and underlying the CRR process.

In the one instance where taping was suggested, the discussion was held by telephone as the corporate’s representatives and the ATO officers were in different states. In addition, the ATO officers found the corporate’s structure unusual and unlike structures previously encountered. The officers wanted to use the tape for reference rather than going back to the corporate for clarification. The use of the tape was discussed at the beginning of the discussion and immediately turned off once the corporate’s representatives objected.

For further information regarding the Client Risk Reviews contact:

Gordon McKimmie (02) 9374 1658

John Supple (03) 9275 2335

Meeting Discussion : No discussion.

NTLG0109/12: ATO to provide the ATO brochure tabled at the Corporate Consultative Committee.

Status: Completed. PALU posted the Corporate Compliance Model booklet to all NTLG members on 27 September 2001.

Meeting Discussion : No discussion.

NTLG0109/13: ATO to advise NTLG whether there has been any change to the ATO’s view of the application of Legal Professional Privilege.

Status: The judgement of the Full Federal Court in Australian Competition and Consumer Commission v The Daniels Corporation International Pty Ltd [2001] FCA 244 suggests that section 264 of the Income Tax Assessment Act 1936 may override Legal Professional Privilege (LPP). Sundberg J in ANZ Banking Group Ltd v Deputy Commissioner of Taxation [2001] FCA 314 also suggests that the reasoning in the Daniels Corporation case leads to the conclusion that LPP does not apply to a notice issued under section 264.

However, it has not been authoritatively determined whether section 264 or equivalent provisions in other Acts administered by the Commissioner override or abrogate LPP. Furthermore, the Daniels Corporation case has been appealed to the High Court.

At this time, there has been no change to the ATO’s application of LPP as a result of the decision in the Daniels Corporation case. The ATO will continue to assume that section 264 does not override LPP, but reserves the right to seek access under section 264 (and equivalent provisions) to privileged documents, evidence and information pending an authoritative decision that section 264 overrides LPP.

Meeting Discussion : No discussion.

NTLG0109/14: The paper detailing ‘reasonably arguable position’ issues to be refined by the authors if necessary and provided to the ATO.

Status: No action required – refer to agenda item 20.4 in the 6 September 2001 minutes.

Meeting Discussion : Law Council representatives sought to follow this matter up with their members before it was concluded.

NTLG0109/15 : ATO to further investigate the trust resettlement issues in line with the professional bodies’ request for specific information regarding Centrelink’s text for the withdrawal from a trust and stamp duty implications.

Status: Draft TD 2001/D7 issued on 29 August 2001. The wording of the renunciation statement used in the example in the draft TD is similar to the renunciation declaration issued by FaCS/Centrelink on their web site. FaCS/Centrelink regards this declaration as an acceptable renunciation.

Following consideration of the submissions received on Draft TD 2001/D7 the ATO released Taxation Determination TD   2001/26 on 31 October 2001 (see Attachment 8).

While the final TD has not changed in substance the matters dealt with in the draft TD, it has been expanded to deal with various matters raised in the submissions. The TD continues to state that a renunciation by a beneficiary of an interest in a discretionary trust would give rise to a CGT event C2 for the beneficiary, being an abandonment, surrender or forfeiture of the interest. The TD outlines the CGT consequences in these circumstances. It also provides a detailed example which is typical of the cases being dealt with by FaCS/Centrelink, and contains a more detailed conclusion on the tax consequences.

The ATO has provided responses on all matters raised in submissions received on the draft TD. This response has been sent to the professional bodies that made submissions on the draft TD.

The NTLG will be aware the ATO cannot comment on State stamp duty implications.

Meeting Discussion : No discussion.

NTLG0109/16: Professional bodies to provide a note for the NTLG covering discussions about the continuity of ownership test with the ATO’s Losses Centre of Expertise.

Status: No further action required – refer to agenda items 20.1-20.4.

Meeting Discussion : No discussion.

NTLG0109/17: A revised status report for NTLG0106/24 to be prepared and provided to PALU.

Status: No further action required.

Meeting Discussion : No discussion.

NTLG0109/18: NTLG’s interest in the technical corrections register be passed to the Tax Design Group for further consideration and the NTLG advised.

Status : The ATO has a technical amendments register that records details of all required technical corrections and minor policy technical amendments. The Government decides and sets the priorities for the legislative program, therefore, whether technical amendments will be agreed to and drafted is a matter for the Government.

The need for a technical amendment may be determined through a number of processes: interpretation of the law by areas of the ATO, during drafting by the Office of Parliamentary Counsel, during the annual consolidation of Acts by the Attorney-Generals Department, during consultation undertaken as part of the development of legislation and from interaction with the law by tax professionals. Under current arrangements when it is determined that a correction is required, the correction is identified to the ATO Tax Design Group forum which considers all proposals for legislative change.

A Technical Corrections Bill was introduced in 1997 and was to be followed by other such bills, however, no additional technical corrections bills have been introduced.

After the federal election was called in August 1998 all bills under development were reviewed and the ATO’s legislative focus was subsequently redirected to tax reform issues. With the difficulty experienced since that time in developing and introducing a technical corrections bill, given competing government legislative priorities and limited drafting resources, the ATO developed an alternative strategy for addressing technical corrections. This strategy aligns with the Ralph Report recommendation that urgent or significant matters be addressed as soon as possible.

It has become the norm to introduce technical corrections in subject-related bills once they have been identified to the ATO’s Tax Design Group and bid for in a generic bill or bid for ‘on spec’ as part of a subject-related bill. For example, New Business Tax System (NBTS) bills were bid with a technical corrections item in case there was a need to make corrections to previously introduced NBTS bills. Then, when technical corrections are drafted, they are included in an appropriate schedule in the relevant bill. Non-reform technical corrections are included in omnibus taxation laws amendment bills.

Over the last three years technical corrections and minor technical amendments have been introduced in 29 tax-related bills.

Meeting Discussion : No discussion.

NTLG0109/19: The suggestion by the NTLG to revert to the definition of reasonably arguable contained in subsection 222C(1) be conveyed to the Tax Design Group for possible inclusion in the list of technical corrections.

Status : Completed. Suggestion noted by Tax Design Group.

Meeting Discussion : No discussion.

NTLG0109/20: ATO to provide detailed membership lists to all members of the NTLG and related subcommittees and working groups.

Status: To be made available to all subcommittee members by week ending 14 December 2001.

Meeting Discussion : No discussion.

NTLG0109/21: ATO to provide NTLG members with scheduled NTLG meeting dates for 2002.

Status: Completed. Members advised via e-mail.

The NTLG meeting dates for 2002 are:

· Thursday, 28 February

· Thursday, 6 June

· Thursday, 5 September

· Thursday, 5 December

Meeting Discussion : No discussion.

19.4 [_Toc2051308] ATO Tax Practitioner Forum Report

Meetings : Last meeting held on 2 November 2001.

Minutes : Minutes of the 3 August 2001 meeting have now been confirmed. Draft minutes from 2 November 2001 are due to issue shortly.

Summary of Significant Issues Discussed:

Lodgment of company dividends and interest paid schedules

The members raised concerns over the 31 October 2001 due date, especially when small closely held companies do not ascertain the information to complete the schedules until the preparation of their income tax return.

The ATO announced an extension of the lodgment date to 14 December 2001 and then undertook to arrange a telephone hook-up with ATPF members to resolve the issue of small closely held companies. A broadcast issued to all practitioners on 21 November 2001 detailing further extensions for small closely held companies.

Application of the new penalty regime

The ATO provided the draft practice statement on the remission of penalties in the second year of the new tax system. Attention was drawn to the interaction of the draft practice statement with other ATO penalty advice including a new ruling on shortfall penalties and the fact sheets on correcting GST and PAYG mistakes.

Nominee tax agents where a sole practitioner dies

Members requested the assistance to establish appropriate protocols following the death of a sole practitioner. The ATO agreed to form a working group to consider this issue.

Partnership reconstitutions and ABNs

The ATO announced its plan to cancel the ABN registration of the ‘old’ partnership where a partnership is reconstituted and then re-issue the same ABN for the ‘new’ partnership. ATPF members welcomed the attempt at reducing compliance costs in these circumstances but raised concerns about the GST implications and the reporting requirements for partners of both the ‘old’ and ‘new’ partnerships.

Business Tax Reform Education Strategies

The ATO sought assistance from members on how to approach its business tax reform education strategies to be of greatest assistance to practitioners. Members highlighted the need for education and communication strategies that consolidated existing measures; provided details of intermediate measures such as consolidations and introduced future measures such as the Tax Value Method.

The ATO suggested consideration also be given to reviewing the existing ATO/Tax Practitioner ‘Ednet’ group in terms of purpose and membership to make it more relevant to the current education needs of practitioners.

Community research simplified personal tax

The ATO provided details of community research conducted into ways to simplify the personal tax obligations of salary and wage earners. The research report is available on the ATO’s website at ht [_Hlt529781947] tp:// [_Hlt532017517] www.ato.gov.au/content.asp?do [_Hlt529782971] c=/content/I [_Hlt529781932] ndividuals/16577.htm .

Meeting Discussion : No discussion.

19.5 [_Toc2051309] Capital Gains Tax (CGT) Subcommittee Report

Status: The CGT subcommittee has not met since the last NTLG. The next subcommittee is scheduled for 28 November 2001.

Meeting Discussion : No discussion.

19.6 [_Toc2051310] Electronic Commerce Consultative Forum Report (the e-Forum)

Meetings: The e-Forum met on Wednesday 10 October 2001. The e-Forum will now meet on an annual basis supplemented with smaller group meetings for specific issues. Members agreed these sub-groups will meet prior to the OECD TAGs meetings, the first of which is likely to be February 2002 to coincide with the business profits TAG meeting. In the intervening time the e-Forum will continue to progress issues via electronic media.

Minutes: The final minutes from the October 10 meeting have issued.

Summary of significant issues discussed:

Issue 1 : The relevance of the Permanent Establishment (PE) concept for contemporary business practices and alternatives better suited to this environment.

For some businesses, the definition of PE does not give rise to many problems because they generally set up traditional PEs (because of the way they operate in accordance with regulatory regimes). For others, the existing definition creates PE where there are few profits to attribute (for example, substantial equipment including servers). For others, having a PE is optional because of the way they operate (for example, digital businesses).

Members agreed there is a need for one rule for all types of business profits, rather than a specific rule to deal with electronic commerce. Adapting the existing rules to better reflect a threshold which allows a source country to tax where there are substantial operations within that country is currently the most favoured approach.

Issue 2 : ATO's electronic service delivery opportunities:

The ATO’s initiatives in the area of electronic service delivery were presented to members. The ATO’s vision centres around the notion that if you were starting from scratch, how would you go about setting up a completely new model for the administration of tax, and what transitional plan you would need to achieve that outcome.

Members were also briefed on the role the ATO is playing in delivering the Government's Online Strategy.

Issue 3 : The collection of consumption taxes on cross border business and an examination of collection options.

The following four indirect tax collection options currently being examined by the OECD Consumption Taxes TAG were discussed:

· Consumer Reverse Charge;

· Financial Intermediary;

· Registration; and

· Tax and Transfer.

The first two were viewed as not viable. The Registration alternative was highlighted as having short term potential, but would involve significant compliance costs, as businesses would be expected to register for GST in every country where they have a customer. Tax and Transfer essentially involves collecting GST on “exported services” on behalf of the country of the consumer and then transferring the tax to that country. However, this alternative also faces difficulties, particularly in determining what legal basis exists for the right to force other countries to collect taxes on another country's behalf.

The Tax and Transfer option was the preferred approach by members, as businesses would prefer to deal with one tax authority rather than be burdened with registration obligations in numerous countries.

Members are encouraged to make submissions prior to the next Consumption Taxes TAG meeting is scheduled for December.

Issue 4: Geolocation technologies with a focus on both business and taxation needs for the verification of location of customers.

Discussion of geolocation technologies centred on the problems faced by both business and tax authorities in accurately identifying the country of jurisdiction of customers in online business to consumer (B2C) transactions. Geolocation tools are being used by businesses to trace the physical location of a web user, primarily for advertising and marketing purposes. Claims have been made of accuracy rates of up to 96-98 per cent, however, anecdotal evidence suggests that these accuracy rates may be inflated.

The focus of this work the potential for GST and implications for future application for withholding taxes.

Other Matters: Members were encouraged to make submissions and contributions on any of the issues covered at the Forum, and widely circulate the OECD papers which were publicly released for comment in February 2001 amongst their constituents. Submissions may be made to the ATO or directly to the OECD.

Meeting Discussion : No discussion.

19.7 [_Toc2051311] Fringe Benefits Tax (FBT) Subcommittee Report

Meetings: The subcommittee met on 16 August 2001, with final minutes issued on 12 October 2001, and on 15 November 2001.

Summary of Significant Issues discussed at August meeting:

Issue 1 - Interaction of GST/FBT following the issue of Goods and Services Tax Ruling GSTR 2001/3 - Operation of Division 71 of GST Act and concepts of remuneration and work related benefits. The issue of car and entertainment acquisitions and their identification as work or remuneration benefits. This submission sought guidance on how to identify other types of benefits.

The ATO provided guidance on how to identify:

· Acquisition that relate wholly to remuneration benefits;

· Acquisitions that result in remuneration benefits (with some FBT payable); and

· Acquisitions that result only in work benefits (and no FBT is payable

Some members, however, were concerned that there may be inconsistencies in applying the principles. Members agreed there would be further discussion of the issues between the ATO and relevant members and the submission would be included in the agenda for the next meeting.

Issue 2 - Discussion of an alternative FBT Lodgement Program. The submission, including comments made by members at the meeting, were forwarded to Client Account Management Lodgement Policy and Practice area for consideration.

Issue 3 - Distinction between living away from home and travelling. Members sought guidance about what criteria the ATO would use to distinguish whether a person is living away from home (LAFH) or travelling.

The scenarios contained in the submission were quite factual and would require numerous assumptions and queries to be made when providing a response. The ATO acknowledged that there may be some practical and compliance difficulties for large corporations dealing with LAFH issues and explained why it is not possible to provide specific advice at this forum.

Meeting Discussion : Professional bodies noted their unanimous opposition to the ATO’s view of payments made while an employee is on leave in the context of the finalised salary sacrifice ruling (TR2001/10 – Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements relating to payments made to employees while on leave). Professional bodies suggested that no business would have the capacity to follow the requirements outlined in the ruling relating to the mix of an employee’s remuneration, also suggesting that a legislative amendment would be needed to allow a realistic outcome.

Second Commissioner D’Ascenzo agreed to consider the matter further and asked the professional bodies to provide details of their concerns to the ATO. He asked whether the concerns were in relation to the practicalities or in relation to the interpretation of the law.

Action Item NTLG0112/12 : Professional bodies to detail their concerns with TR2001/10 – Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements relating to payments made to employees while on leave.

19.8 [_Toc2051312] Foreign Source Income (FSI) Subcommittee Report

Meetings: The proposed 8 November 2001 meeting was deferred until the 6 December 2001 due to the Federal election.

Minutes: The final minutes of the 25 July 2001 meeting have issued.

Meeting Discussion : No discussion.

19.9 [_Toc2051313] GST Rulings Panel Report

Status: During the period 1 September to 20 November 2001, the GST Rulings Panel has convened on two occasions. A further meeting is scheduled to occur before the end of November.

In the two meetings, the Panel examined and provided advice on the following GST public rulings:

· GST and prizes;

· special education courses;

· non-monetary consideration (including an issues paper discussing the feedback from draft Goods and Services Tax Ruling GSTR 2001/D5);

· financial supplies;

· apportionment (including an issues paper discussing the feedback from draft Goods and Services Tax Ruling GSTR 2001/D4);

· GST and partnerships;

· the meaning of the phrases ‘directly connected with’ and ‘a supply of work physically performed on goods’ for the purposes of section 38-190; and

· section 38-190, supplies of things, other than goods or real property, for consumption outside Australia.

The GST Rulings Panel also considered two issues out of session: a draft Miscellaneous Taxation Ruling on penalties for false and misleading statements and a Goods and Services Tax Ruling on the meaning of ‘annual turnover’.

The Panel will consider the GST treatment of:

· financial supplies;

· importation of goods;

· section 38-190, and supplies of things, other than goods or real property, for consumption outside Australia; and

· apportionment.

at its next meeting on 21-22 November 2001.

Meeting Discussion : No discussion.

19.10 [_Toc2051314] PAYG Working Party Report

Meetings : 20 August 2001. Next Meeting: None scheduled.

Minutes : Outcomes of meetings are recorded in the PAYG Working Party Issues Register which is available on the ATO’s Tax Reform website.

Summary of significant issues discussed :

Correcting PAYG mistakes

Draft PAYG fact sheet on correcting PAYG instalment income mistakes was discussed. The fact sheet is now available on the Tax Reform website .

PAYG treatment of transferred losses

Discussions were held regarding the ATO’s response to a question on the exclusion of transferred losses when determining PAYG instalment rates. Attention was drawn to the fact that the exclusion of transferred losses in calculating the PAYG rate for a future year is a design feature of the law.

The discretionary nature of the use of losses and the changing pattern of availability means it is inappropriate to assume that the level of loss transfers in a particular year will be repeated in the next year.

Other Matters: Many PAYG administration issues are now being addressed through the Activity Statement Taskforce.

Meeting Discussion : No discussion.

19.11 [_Toc2051315] Superannuation Industry Liaison Group Report

Meeting: 12 September 2001 (Status of Minutes: Draft.) Next Meeting: 11 December 2001

Summary of Significant Issues Discussed

Issue 1: The ATO’s approach to ensuring compliance regarding the Self Managed Superannuation Fund (SMSF) market was discussed, including balancing its responsibilities under the Superannuation Industry Supervisory Act (SISA) the Income Tax Assessment Act

(ITAA). The participants were comfortable with the ATO’s current approach, concentrating on education and information for trustees and administrators of small funds.

Issue 2: Members agreed to invite a representative of the Privacy Commission to the next meeting following concern in the industry about the impact of the new privacy laws, in particular the cost of implementing changes to processes.

Issue 3: The meeting was also preoccupied with the effect of the 11 September 2001 tragedy on world markets, in particular unit pricing where members wanted to take benefits or move money around. Subsequently, the Commissioner issued a communiqué highlighting the need for the ATO to be sensitive to all issues falling out of the events of the tragedy in New York.

Meeting Discussion : No discussion.

19.12 [_Toc2051316] Tax Practitioner Industry Partnership Report

Meetings: 11   September 2001 and 15 November 2001.

Minutes: Issued for September meeting, draft for November meeting.

Summary of Significant Issues Discussed:

· Australian Business Register and GST groups

· GST and income tax deductibility where cents per km used

· GST and income tax deductibility — depreciation

· div 135 anomaly

· delay of refunds and calculation of IOP

· request for a public ruling — partnerships

· GST fact sheets/rulings and education for GST issues in relation to motor vehicles, margin schemes, disbursements and retirement villages

· submissions to rulings from the professional bodies

· location of resolved issues and broader distribution

· employee entitlements submission in relation to supplies of a going concern

· margin schemes (division 75) and fractional Interests in land (for example, a partnership situation)

· legislation for post transitional period

· BAS amendments-demand for annual reconciliation process and treatments of accounting private use component of acquisitions

· examples on correcting GST mistakes

New issues resolved:

· GSTR 2001/5 and the application of division 165

· Correcting GST mistakes fact sheet

Issues resolved:

· application of ACCC measures after 30 June 2002

· ATO policy on announced changes

· leniency of ATO

· compliance statistics

· BAS correction limit threshold

· GST-free export of goods - declaration proposal

· hire purchase arrangements

· electronic commerce interface and ELS

· timeliness of private rulings and ATO responses

· definition of long-term leases in s 195-1

· share for share swap

Meeting Discussion : No discussion.

19.13 [_Toc2051317] Transfer Pricing Subcommittee Report

Meetings: The Subcommittee held meeting on 20 November 2001. The next meeting will be held on 12 March 2002.

Minutes: Minutes for the July meeting have been approved by the members. The November meeting minutes are still in draft form.

Summary of Significant Issues Discussed

Issue 1: Members were given a brief presentation on the impact of consolidations policy on current transfer pricing documentation.

Issue 2 : Members were briefed on the ATO’s ongoing Transfer Pricing Record Review & Improvement project. This included an update on the progress of the benchmarking risk assessment research project re distributor/marketer companies undertaken by the Economist Cell of LB&I, International.

Issue 3: Members were given an update on Advance Pricing Arrangement developments since last meeting.

Other Matters: Representatives from the Australian Industry Group (AIG) announced their resignation as members of the subcommittee.

Meeting Discussion : No discussion.

19.14 [_Toc2051318] International Tax Rulings Panel Report

Meetings : The panel met on 11 October 2001. It is scheduled to meet again on 17 or 18 December 2001.

Summary of Significant Issues Discussed

Issue 1: The panel considered an addendum to TR 2000/16. (TR 2000/16 covers international transfer pricing and profit reallocation adjustments, relief from double taxation and the Mutual Agreement Procedure issues.)

Issue 2: The panel considered (out of session) the comments submitted in relation to TR 2001/D6 dealing with the meaning of permanent establishment under domestic law. A revised draft ruling is currently being prepared for the panel’s consideration.

Issue 3: The panel began considering the inter-relationship between Div 16F, Div 16G and Part IIIB of ITAA 1936 with Div 13 and double tax agreements.

Other matters:

· The ruling on international transfer pricing – operation of Australia’s permanent establishment attribution rules was issued on 31 October 2001 as TR 2001/11 (previously released in draft as TR 2000/D15).

· The public ruling on the meaning of ‘arm's length’ for the purpose of subsection 47A(7) of the ITAA 1936 dividend deeming provisions issued on Wednesday 3 October 2001 as TR 2001/D8.

· The ruling on the meaning of “continently entitled” with reference to entitlements to acquire for CFC and FIF purposes issued as TR 2001/D12 on 17 October 2001. The last date for public comments on this draft ruling is 28 November 2001.

· The public ruling on the implications of the Century Yuasa Batteries case for interest withholding tax was issued as TR 2001/D13 on 17 October 2001.

· The draft ruling on the application of Australia’s pre-CGT double tax agreements to capital gains is to issue as a final in early December.

· A practice statement on the interpretation of international double tax treaties is expected to issue in early December.

· A draft TD on the application of s 160APAAAA(2) of ITAA 1936 was circulated for comments.

· Revised draft ruling on the royalty rate applicable (for example, 30 per cent or 10 per cent) on that part of a royalty payment which, under a royalty article of a double tax treaty, is considered to be excessive was considered by the panel in July and approved to issue as draft. Some policy issues need to be resolved before the draft ruling can issue.

Meeting Discussion : Professional bodies noted the draft ruling following the Century Yuasa Batteries case, adding that royalty withholding tax may also be an issue in the future.

Professional body members spoke about the application of PtIVA following discussion at a recent Taxation Institute of Australia (TIA) intensive workshop, suggesting taxpayers and advisers rely on the ATO’s ‘benign’ discretion. They were also concerned the ATO did not adequately address the full range of potential application of this part of the 1936 Act. Second Commissioner D’Ascenzo suggested that a number of scenarios are addressed through ATO Interpretative Decisions (ATO ID) and invited professional bodies to bring additional scenarios to the ATO’s attention if they are not addressed through existing ATO IDs.

[_Toc2051319] 19.15 Litigation Panel Report

Meetings: The ATO Test Case Litigation Panel was convened 21 September 2001.

Outcomes: Funding was recommended for the first and second issues on the basis that is was in the public interest to have these tax law issues clarified. Funding was recommended for the third issue in principle to find a suitable case. The Panel recommended that funding be declined for the fourth and fifth issues on the basis that the issues raised in those cases did not satisfactorily meet funding criteria.

Summary of Significant Issues Discussed :

The tax law issues raised in the applications for test case funding included:

· the powers of the AAT in relation to its determination of s 170B of ITAA which would determine whether the Commissioner was bound by the application of the public ruling;

· whether the taxpayer was carrying on a business of participating in sport during the year ended 30 June 1999, such that all amounts received by the taxpayer in connection with the taxpayer’s sport (including prizes, grants, gifts and sponsorships) are the proceeds of that business and therefore assessable income and whether payments received under grants from the AOC are income within the ordinary meaning of that word, regardless of whether a relevant business is being carried on, simply on the basis that they are recurrent;

· who is entitled to refunds of overpayments of interest withholding tax made by Australian borrowers as a consequence of IT 2683;

· the scope and application of the principle of mutuality in relation to receipts by a NSW registered club from gaming where there is the involvement of one or more other parties and the scope and application of the principle of mutuality in relation to receipts of a NSW registered club from a company that was formed for the joint benefit of that club and other clubs, being a surplus which arose from functions performed by that company on behalf of those clubs; and

· whether superannuation guarantee should be calculated based on the definition of ordinary hours on the Clerical Employees Award or under the Superannuation Guarantee (Administration) Act 1992

Other Matters: The Panel commended the recently published Test Case Litigation Program booklet.

Meeting Discussion : No discussion.

19.16 [_Toc2051320] Part IVA Panel Report

Meetings: 12 and 13 September 2001; 17 October 2001; 12 November 2001

Summary of Significant Issues Discussed

· Scheme for thin capitalisation of permanent establishment

· Securities Lending Arrangements

· Offshore superannuation arrangements

· Film scheme

· Scheme involving prepaid interest on substantial loans and overseas trust funds

· Labour hire arrangements involving foreign nationals/ living away from home allowance

· Dividend Reinvestment Scheme

· Avoidance of Capital Gains Tax

· Trust loss schemes

· Home Loan Unit Trust Schemes

· Interest deductions on quasi-equity

· Division 373 schemes

The Panel was supplemented in these meetings by Professor Bob Deutsch of the University of New South Wales.

Meeting Discussion : No discussion.

19.17 [_Toc2051321] Public Rulings Panel Report

Meetings: During the period 1 September 2001 to 30 November 2001, the Public Rulings Panel (the Panel) has convened on three occasions.

Summary of significant issues

The Panel has examined and provided advice on the following public rulings:

· Div 10B film schemes;

· simplified tax system – the grouping rules in Subdiv 328-F of the ITAA 1997;

· simplified tax system – STS average turnover;

· non-commercial business losses;

· licence arrangements for intellectual property;

· adjustment of cost base interests in a loss company under Subdiv 170-C of the ITAA 1997 following a loss transfer;

· consumer loyalty programs;

· deductibility of travel expenditure when carrying equipment;

· penalty liability – false or misleading statements.

The next Public Rulings Panel meeting is scheduled for 3-4 December 2001.

Meeting Discussion : No discussion.

19.18 [_Toc2051322] Tax Treaties Advisory Panel Report

Meetings: A special meeting was held by telephone hook-up on Thursday 20 September 2001 to brief Panel members on the terms of the US protocol, which had been finalised but not yet signed at that time (subsequently signed on 27 September 2001).

The next regular Panel meeting is likely to be held in early February 2002. This will enable participants to discuss issues relating to the UK negotiations prior to the second round of talks. It is also intended that the treaty program for 2002 will be discussed.

Summary of Significant Issues Discussed:

Jim Killaly reviewed the main aspects of the protocol, including:

· the removal of DWT from non-portfolio dividends paid to a publicly listed company which holds 80 per cent or more of the voting power of the company paying the dividends;

· 5 per cent DWT on other non-portfolio dividends, and 15 per cent DWT on all other dividends;

· special provisions relating to Australian investments in US real estate investment trusts (REITs) which protect existing holdings;

· an IWT exemption for government bodies and financial institutions (subject to safeguards relating to ‘back-to-back loans’ and avoidance arrangements);

· reduction of the general RWT rate to 5 per cent and removal of equipment royalties from the definition of ‘royalties’;

· a comprehensive alienation of property article (including a source country sweep-up provision that allows the source country to tax capital gains);

· the removal of double taxation of capital gains in the case of departing residents and provisions ensuring that foreign tax credit rules operate effectively for them;

· the inclusion of the Petroleum Resource Rent Tax as a tax covered by the convention;

· the provisions relating to entry into force.

Panel members raised issues relating to:

· the application of the limitation of benefits article to bodies which are not listed Australian investment trusts;

· the impact on foreign parent guarantees of the ‘back-to-back loan’ exception to the financial institutions IWT exemption in the interest article;

· the interaction of the Australian debt/equity rules with the dividends and interest articles;

· whether any e-commerce implications had been considered in the discussions surrounding the royalties and permanent establishment articles; and

· the omission of provisions relating to employee share option plans.

Meeting Discussion : No discussion.

20 [_Toc2051323] Other Business

[_Toc2051324] 20.1 Tax losses and problems with the Continuity of Ownership Test (COT)

There are many unresolved issues surrounding whether, for purposes of satisfying the continuity of ownership test for purposes of (inter alia) tax losses, a company can consider it ‘reasonable to assume’ continuity of ownership in s 165-150. The problems include:

a. Apparent unavailability or use of 1 per cent notional shareholder rules where a company is not a direct subsidiary of a listed company but has listed company shareholders.

b. Difficulty of demonstrating ownership of bearer shares held by foreign investors in foreign listed companies (bearer shares in listed European companies are common)

c. Approach to holdings by major Australian super funds and life companies in unlisted companies.

Can the Commissioner outline the approach being adopted in relation to these apparent difficulties arising from the formulation of the COT, and likely timetable and action to resolve the difficulties.

Response: To be discussed at the meeting.

[_Toc2051325] 20.2 Tax losses and situations where a company finds it difficult to prove continuity of ownership

In the June 2001 NTLG we discussed the following at item 21.1

"We are aware that some companies have disputes with the ATO as to their compliance with the COT. In particular, it is understood that Australian companies, whose shareholders include foreign listed entities with foreign nominees etc (in line with ordinary commercial practice in Australia and overseas) are being advised by the ATO that they must prove their non-compliance and the date of non-compliance with COT, otherwise they will be denied access to the SBT for carry-forward of their losses. Given that some taxpayers will be unable to produce a date of formal non-compliance with COT (due to nominee and publicly listed shareholders) the net result is to apparently prevent the companies from reliance on the SBT, while at the same time being unable to rely on the COT.

Are there any ATO processes or procedures which would prevent the ATO from accepting commercially that Australian companies fail to comply with the COT and that the companies are therefore reliant on the SBT test for tax loss carry-forward? If so, can these be disclosed?

Meeting Discussion: Second Commissioner D’Ascenzo provided members with a copy of a briefing note for their information. Professional bodies agreed to provide this information to a wider range of members and provide any comments via PALU."

The briefing note was helpful but did not address the specific question. (See Attachment 9.)

Clarification Questions -

a. The drafting of the rules for carry forward of company losses under the same business test appears to require that there be a formal ownership continuity period (Sec 165-13(2)) which is broken. The professions are advised that some corporate taxpayers find it impossible to clearly identify their ultimate individual shareholders due to problems such as those outlined in 20.1 of this agenda item, and that such corporate taxpayers have been advised by the ATO that they are technically barred from access to the same business test unless and until they show a detailed shareholder analysis leading to a positive continuity of ownership at some time and a positive ‘failing’ of the test.

Can the Commissioner state clearly whether a company must formally prove or consider it reasonable to assume that there was a period of continuity of ownership and a formal failure of the continuity of ownership test (by tracing through to natural persons through interposed entities) before it can attract the continuity of business test.

b. Where companies have difficulties with tracing to their shareholders, as outlined at Question a, above, how is this policy administered to provide a reasonable and equitable outcome.

c. Is this considered to be a matter requiring a technical correction of the law.

Response: To be discussed at the meeting.

[_Toc2051326] 20.3 Continuity of ownership and interposed trusts

In the case of a family trust owning the majority of shares in a loss company, s 165-207 was introduced to provide a tracing rule concession. Section 165-207 provides that ".......For the purposes of the primary ownership test, the trustee of a family trust that owns shares in a company is taken to be the beneficial owner of the shares........"

On a strict reading of section 165-207 a change of trustee in the family trust that holds a majority of shares in the loss company would breach the continuity of ownership in the company. It is not uncommon for there to be a change in trustee of a discretionary trust where no other changes to the trust are made, and the professions note that for all other purposes of the Act, including the trust loss provisions, a change in trustee does not have any affect.

We note the non-binding comments that "Preliminary view: the ATO will not administer s 165-207 and affected provisions so as to deny the tracing concession clearly intended by section 165-207" - refer The New Tax System Workshop Discussion Paper (in draft) on the Loss integrity Measures: Topical Issues & Frequently Asked Questions (provided for the purpose of a workshop with the Corporate Tax Association on 24 & 27 November and 1 December 2000). In the paper, it was considered whether the effect of section 165-207 is that a trustee is treated as an individual or whether a technical correction is needed to achieve that result. As the primary purpose of enacting section 165-207 is to achieve a consistency between the trust loss provisions and the company loss provisions, we are concerned that this anomaly does not appear to be squarely addressed by section 165-207 and the ATO’s preliminary view on this matter.

Can the Commissioner outline the priority and process for resolution of this issue.

Response: To be discussed at the meeting.

[_Toc2051327] 20.4 Resolution of the outstanding issues

Can the Commissioner outline the priorities and processes for resolution of outstanding problems and difficulties in relation to the company loss tests. The professions recognise the resource constraints in a time of tax reform, but note also that these issues will assume even greater significance in the lead up to consolidation.

Response: To be discussed at the meeting.

Meeting Discussion : Robert Puckridge (ATO, Senior Tax Counsel) attended for this item. Robert noted the ATO is aware of problems existing in this area of the legislation. He also advised the ATO is exploring options to address the situation administratively, including looking at the inclusion of a discretion to deal with some of the generic issues.

The meeting agreed that Robert’s team could work more closely with the Consolidations team with a view to including potential legislative amendments in the consolidations package. The ATO also suggested that professional bodies could provide any additional issues.

20.5 [_Toc2051328] Lodgment deadlines, Substituted accounting periods and release of draft forms

The professions find that the lodgment deadlines for corporate tax returns are problematical every year, with initial lodgment deadlines being set (especially for larger corporates and for SAPs) which are unworkable and need to be amended after release. The lodgment timetables are particularly problematical for companies with Substituted Accounting Periods in December or January, given that corporate tax return forms are often not released until the second quarter in each calendar year.

This problem is exacerbated by the ongoing tax reform processes which mean that return forms for businesses require additional disclosures which cannot be anticipated by taxpayers and tax agents. These are systemic issues which will persist during the likely 3-4 year period needed to finalise business tax reform.

We would propose for discussion:

a. Introduction of a standing extension of time for lodgment of SAP business tax returns until the later of July 31 each year or 3 months after release of the relevant return forms.

b. A transparent process of release of draft tax returns, including a ‘first cut’ release of Company return forms before the end of the calendar year. This is necessary to allow taxpayers and business community time to plan for new information requirements which will arise, and also to adjust computer systems or manual processes to extract the relevant data. This problem is acute for SAP taxpayers, but is a significant challenge for June 30 taxpayers also. The current processes involve various elements of consultation but this is bound by confidentiality agreements. It is recognised that the ATO needs time to finalise its requirements, but the lack of any transparent interim signalling to the tax agent or business community represents a systemic problem for taxpayer compliance.

Response: To be discussed at the meeting.

Meeting Discussion : The ATO advised this issue will be discussed at the ATPF Lodgement Working Party. Professional bodies believed that earlier availability of return form stationary for SAP taxpayers would assist return form preparation. Murray Crowe noted that while returns were lodged on prior year forms, current year schedules were usually available.

[_Toc535642413][_Toc2051329] 20.6 External panel member

Meeting Discussion : Second Commissioner D’Ascenzo advised the NTLG that Justice Tony Pagone, a judge in the Supreme Court of Victoria will, on the basis of his availability and capacity to contribute, be an additional external member for ATO panels.

[_Toc2051330] 21 Next Meeting

The next meeting is scheduled for Thursday 28 February 2002 at 9.30am at the Australian Taxation Office, 2 Constitution Ave, Canberra.

22 Action items from 6 December 2001 meeting

Item

Agenda Item Ref.

Subject

Who

NTLG0112/1

4

Professional bodies to provide nominations to PALU for participation in a working party to progress further ATO support, initiatives and regulatory framework issues for the tax profession.

Professional Bodies /
PALU

NTLG0112/2

4

ATO to provide further information in relation to age profiles for incoming and outgoing tax agent registrations for last year.

David Diment

NTLG0112/3

5.2

ATO to consider widening the TaxPack consultation group membership.

Raelene Vivian

NTLG0112/4

5.2

ATO to report on the consultation process for return types other than TaxPack.

Raelene Vivian

NTLG0112/5

6.2

ATO to consider alternative channels to disseminate meaning of the description of GIC on a notice of assessment or amended assessment.

Murray Crowe

NTLG0112/6

7

ATO to provide further information about ‘account history’ template referred to in the ATO’s response.

Greg Topping

NTLG0112/7

9.2

ATO to detail access to the Register of Private Binding Rulings on the ATO website.

PALU

NTLG0112/8

10

Professional bodies to provide examples, if available, of ATO’s non-compliance with the requirements of a model litigant.

Professional Bodies

NTLG0112/9

10

ATO to consider the need for further information on the ATO’s interpretation of travel from two places of work where one of those places is also the taxpayers home.

Steve Knipler

NTLG0112/10

11

Professional bodies to be advised of:

· expected release of draft practice statement or discussion paper on partnership reconstitutions; and

· steps the ATO expect to take to progress the resolution of the issue.

Bill Powell

NTLG0112/11

16

ATO to arrange a meeting with professional body representatives to discuss issues relating to granting taxpayers substituted accounting periods.

Andrew Reed

NTLG0112/12

19.7

Professional bodies to detail their concerns with TR2001/10 – Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements relating to payments made to employees while on leave.

Paul Hockridge /
Lee Beaver

NTLG0112/13

14

Professional bodies and ATO to continue to discuss issues around excessive remuneration and s 109 ITAA 1936 and work toward issuing a ruling on the matter.

Professional Bodies /
ATO

[_Toc2051331] Attachment 1 - [articles] Accounting Working Group articles

ARTICLE I:

Accounting Working Group MAKES AN IMPACT

The Accounting Working Group (AWG), a joint ATO / ATPF initiative is out there and working for you. It has made significant advances in addressing a range of concerns expressed by tax practitioners and taxpayers on the operation of the ATO’s Running Balance Accounts (RBA).

What have we achieved?

A priority phone service on 13 72 86 to assist tax practitioners responding to their client's account enquiries.

§ New web site products including a PAYG Instalment Credit Report and RBA Issues Register providing answers to a range of questions from practitioners. There is also a website package with detailed information explaining accounting structures, offsetting processes, definitions of all accounting facets connected with RBAs and clear examples of the layout of typical RBA statements.

http://www.ato.gov.au/level3.asp?placement=AS/TS/C/PF/PF15

§ Reduced the number of RBA statements issued for small amounts by recommending transitional tolerances and the write off of small amounts; thus minimizing the likelihood of GIC being incurred when the amount on the RBA statement is paid.

§ Ability to produce a full year’s list of account transactions on request to assist practitioners in reconciling their client’s tax affairs.

We have also laid the foundation for continued improvements in the future which will:

§ review offsetting rules;

§ improve statement format, transaction descriptions and content;

§ investigate potential interfaces to support Internet access to accounts by practitioners for their clients.

How we will advance these and other proposals will appear in future articles. It is of great satisfaction that by working together the ATO and ATPF can make things happen.

ARTICLE 2:

Accounting Working Group tackles offsetting and FASTER communication

The Accounting Working Group (AWG), the joint ATO / ATPF initiative is taking a bite out of the mystery of offsetting. The group has supported ATO moves to limit circumstances where amounts not actually due and payable are subject to offset across accounts.

Where offset does occur, the AWG is looking at ways to overcome the lack of detailed information in RBA statements. The ATO will introduce a range of system enhancements to explain the movement of amounts across accounts. These will include the provision of a more detailed supplementary advice explaining the amounts that have been offset.

Statement description enhancements to show transfers of credits in and out of the RBA will be implemented in November and December this year. Details of these changes can be viewed through ATO Assist under the Accounting Working Party. Subsequent enhancements to the RBA will be in place by 1 July 2002. http:// [_Hlt527861854] www.ato.gov.au/level3.asp?placement=AS/TS/C/PF/PF15 .

Announcements are due next week promising better and faster services to practitioners:

· Enhancements will be made to phone enquiry service numbers 13 72 86 and 13 15 50. Practitioners have been consulted on menu options for these services.

· A dedicated facsimile number for transmitting requests for RBA Statements/Account Histories is being made available. This will save practitioners time.

· Feasibility of a new ‘E-form’ is being pursued as a more secure electronic medium for transmitting requests, with client detail, from practitioners.

More things to come will appear in later articles.

ARTICLE 3

RBA STATEMENTS - FURTHER CHANGES FOR THE BETTER

The Accounting Working Group (AWG), the joint ATO / ATPF initiative, has laid the groundwork for ongoing consultation in reviewing the design of Running Balance Account statements.

In line with this, the ATO has recently produced a consultation package outlining options for possible RBA statement formats and layout changes. These examples of possibilities for change reflect suggestions from AWG members, in the first instance. The consultation package, including five sample RBA statement formats, has been distributed to the professional bodies participating in the AWG to allow for immediate circulation to and consideration by some of their members. This process was chosen because the timeline for input is unavoidably tight if systems changes are to be achieved as soon as possible.

For practitioners interested in progress here, the ATO will include a copy of the consultation package, together with details of feedback received and any final adjustments to design, on ATOassist. For anyone who has not yet accessed the AWG web address, it is: http://www.ato.gov.au/level3.asp?placement=AS/TS/C/PF/PF15 .

Changes to RBA statement layout are scheduled to be implemented from 1 July 2002. In the short term, the ATO has responded to practitioner calls for more account information by developing an ‘Account History’ in several standardised formats. Statements in this form are intended to provide sufficient information on account postings to allow reconciliation. The further enhancements to RBA statements proposed for July 2002 will, in the majority of situations, replace this ‘Account History’.

Please note, also, that the Issues Register which can be accessed through the website now includes updated information on some more immediate changes to RBA statements to better identify transfers in and out of accounts.

ARTICLE 4:

What’s next?

To cap off our series of articles, the Accounting Working Group (AWG), the joint ATO/ATPF initiative, has provided the momentum which will result in forthcoming changes to the RBA system including:

§ changes to the RBA statement layout - a balance column, additional period information to facilitate the reconciliation of accounts and advice to taxpayers on the importance of retaining the RBA statement for return preparation purposes;

§ commitment by the ATO to delivering changes to RBA statements for 1 July 2002 including the provision of a payout figure that will allow taxpayers to pay their RBA statement balance and avoid further General Interest Charges and more flexibility in requesting manually generated statements for variable periods;

§ addressing the frequency and delivery mechanisms for statements, including the possibility of access via electronic means;

§ upgrading offsetting arrangements whereby clear notification will be sent to clients advising them of the offsetting transaction, where credits will only be offset against debts that are both due and payable and offset action for small debit balances will be overridden and not delay refunds. These changes will be progressively implemented between November 2001 and July 2002; and

§ enhancing the management of activity statement refunds. These changes will be made over a period of time beginning late November 2001. The changes will improve turn around times for refunds and reduce the number of cases of held refunds.

All these improvements are designed to offer greater practical assistance to tax practitioners. The impetus provided by the AWG has supplied the focus to help fine tune the Running Balance Account system. Admittedly, it is not perfect yet. The AWG provides a forum for the ATO and tax professionals to work together at a practical level and will continue to build on these positive achievements to date.

[_Toc2051332] Attachment 2 - [products] List of products on Accounting Working Group website

Accounting Working Group

http:// [_Hlt530458248] www.ato.gov.au/level3.asp?placement=AS/TS/C/PF/PF15

Accounting Working Group (AWG) Schedules of Changes.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16511.htm&bn=AS/TS/C/PF/PF15

Accounting Working Group (AWG) members.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16410.htm&bn=AS/TS/C/PF/PF15

Summary report for July 2001 meeting.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16420.htm&bn=AS/TS/C/PF/PF15

Summary report for June 2001 meeting.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16419.htm&bn=AS/TS/C/PF/PF15

Summary report for August 2001 meeting

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16461.htm&bn=AS/TS/C/PF/PF15

Summary report for September 2001 meeting.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16467.htm&bn=AS/TS/C/PF/PF15

Issues Register

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/15198.htm&bn=AS/TS/C/PF/PF15

This contains accounting issues that have been raised by tax practitioners to date and ATO responses, and will be updated as needed. Contents are as follows:

[_Hlt530285075]· Running Balance Account (RBA)

· Statements of Account

· Offsetting

· General Interest Charge (GIC)

· PAYG Instalments

· Voluntary Instalments

· Notification of Interest Amounts

· Links to other pages (links user to other sections of the AWG site)

· ATO Accounting Arrangements (links user to PowerPoint below)

An update incorporating information on refunds and credit balances will be posted to the website in the very near future.

PowerPoint presentation with flowcharts and explanations of these arrangements.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/15195.htm&bn=AS/TS/C/PF/PF15

Sample Refund Offset Advice for Activity Statements, Excise claims and Income Tax.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16822.htm&bn=AS/TS/C/PF/PF15

Sample RBA Statement for tax practitioners feedback by 16 November 2001.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16777.htm&bn=AS/TS/C/PF/PF15

Glossary of statement descriptions that may appear on RBA statements.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/16518.htm&bn=AS/TS/C/PF/PF15

Statement description changes – transfer postings.

http:// www.ato.gov.au /content.asp?doc=/content/Professionals/15930.htm&bn=AS/TS/C/PF/PF15

[_Toc2051333] Attachment 3 - [changes] Schedule of changes & timeline

[_Toc2051334] Attachment 4 - [ecommerce] International developments impacting on eCommerce

Purpose

The purpose of this note is to provide an update to the NTLG on international developments impacting on eCommerce, in particular the matters before the OECD.

OECD Background

· The Committee on Fiscal Affair's (CFA) aim re taxation and eCommerce issues is to strike the right balance between two competing objectives:

“Governments must provide a fiscal climate within which electronic commerce can achieve its proper place in the global marketplace, weighed against the obligation to operate a fair and predictable taxation system that provides the revenue required to meet the legitimate expectations of citizens for publicly provided services.”

· A guiding principle of the CFA’s work is that “taxation should seek to be neutral and equitable between conventional and electronic forms of commerce”. Work commenced by examining to what extent this can be achieved through the application of existing taxation principles to eCommerce transactions.

· The CFA’s work is progressed through its working parties, the Forum on Strategic Management (FSM) and five Technical Advisory Groups (TAGs). Special consultative processes have been put in place that include representatives from OECD member countries, non-member countries and business.

· The importance of achieving international consensus, given the decreasing relevance of national borders in the context of eCommerce, is a major issue highlighted in the two Tax and the Internet reports released by the ATO (August 1997 and December 1999).

OECD progress towards achieving international consensus on the tax treatment of eCommerce

Representatives of OECD governments have agreed on a number of important conclusions and recommendations that pave the way for greater certainty among businesses and consumers in relation to the taxation of electronic commerce. These conclusions and recommendations by the OECD’s CFA, and the business/government advisory groups that it has set up, cover three main areas: international direct taxation; consumption taxes; and tax administration.

i) International direct tax issues

Clarification on the application of the Permanent Establishment (PE) concept:

The CFA welcomed the broad consensus recently achieved on clarification in the Commentary on the OECD Model Tax Convention ('Model') in respect of the application of the current definition of PE.

In short, the clarification states that a web site cannot, in itself, constitute a PE; that a web site hosting arrangement typically does not result in a PE for the enterprise that carries on business through that web site; that an Internet service provider normally will not constitute a dependent agent of another enterprise so as to constitute a PE for that enterprise and that while a place where computer equipment, such as a server, is located may in certain circumstances constitute a permanent establishment, this requires that the functions performed at that place be significant as well as an essential or core part of the business activity of the enterprise.

Treaty characterisation of eCommerce payments

The CFA also welcomed the report of its TAG on Treaty Characterisation of eCommerce Payments, and agreed that this report would help its Working Party on Tax Conventions to reach an early agreement on how treaty characterisation issues should be resolved and how the Commentary on the Model should be clarified in that respect. This clarification will address how payments for eCommerce transactions should be characterised for tax treaty purposes, thereby ultimately determining which country may tax these payments and under what conditions.

The report, which was unanimously agreed to by TAG members, includes analysis, conclusions and recommendations concerning which treaty provisions apply in particular cases, as well as the TAG's views on how such recommendations would apply in 28 typical categories of eCommerce transactions. Some of the TAG’s principal conclusions and recommendations are:

· in the case of transactions that permit the customer to electronically download digital products for that customer's own use or enjoyment (for instance, where a customer orders software or music from an Internet web site and that digital product is downloaded from that site), the payment should be characterised as business profits rather than as a royalty;

· whilst eCommerce transactions resulting in know-how payments which constitute royalties are relatively rare, the report provides a number of criteria and examples to help distinguish the provision of services from the provision of know-how;

· payments for time-limited use of digital products or for transactions such as data warehousing cannot be considered as payments for the use of, or the right to use, an industrial, commercial or scientific equipment so as to constitute royalties under some conventions; and

· where the consideration for the payment cover various elements but one element is predominant and the others are only of an ancillary and unimportant character, it would be more practical to apply the treatment applicable to the principal part to the whole consideration.

ii) Consumption tax issues

The CFA endorsed the emerging conclusions in a report from its Working Party on Consumption Taxes, and approved its release for public comment. The report notes that it is necessary to define the principle of taxation in the place of consumption more clearly; and to identify the collection mechanisms that can best support the practical operation of that principle.

The report proposes Guidelines to define the place of taxation for cross-border services and intangible property by reference to the business establishment of the recipient business in the case of B2B (business-to-business) transactions, and by reference to the recipient's usual jurisdiction of residence for B2C (business-to-consumer) transactions. On collection mechanisms, the report identifies a self-assessment mechanism for B2B transactions as the most viable option. For B2C transactions, the report points toward the potential in the medium term for technology-facilitated options, while accepting that, in the interim, simplified registration-based mechanisms may be required. The report recognises that further work is necessary in several areas, and recommends that this continue to be pursued in partnership with business.

iii) Tax administration issues

The CFA endorsed the emerging conclusions and future work topics identified in a report on the tax administration aspects of eCommerce, and approved its publication for comment. This report addresses such issues as how tax administrations can ensure effective tax collection in an electronic environment, and the steps that they may need to take to strengthen their co-operation internationally. It also identifies a range of initiatives that tax administrations across the world are already taking to improve the quality of service that they provide to taxpayers.

Publication of OECD reports and technical papers

The OECD has published a comprehensive progress report covering all aspects of its work on the taxation aspects of eCommerce. The following reports and technical papers are available at http://www.oecd.org/oecd/pages/home/displaygeneral/0,3380,EN-document-101-3-no-21-1564-0,FF.html for information and/or comment (as indicated below):

i) on international direct tax issues

For information: The full text of the agreed clarification to the commentary on the Model Tax Convention on the interpretation of the existing definition of permanent establishment

For information: The report by the Treaty Characterisation TAG, which the Committee will be using as the basis for its work on how treaty characterisation issues should be resolved

For public comment: Discussion papers on the attribution of profit to a server PE, and on the place of effective management

For information: A report by the Business Profits TAG

ii) on consumption tax issues

For public comment: A report by the Committee's Working Party on Consumption Taxes

For information: A report by the Consumption Tax TAG

For information: A report from the Technology TAG

iii) on tax administration issues

For public comment: A report by the Committee's Forum on Strategic Management

For information and public comment: A report by the Professional Data Assessment TAG

OECD's future work program

The OECD’s future work program includes:

· On direct taxes: work on issues associated with the attribution of profits to a server PE; on the refinement of the 'place of effective management' concept in determining residence for taxation purposes; and further evaluation of the adequacy of the current treaty rules in the context of electronic commerce, taking into account possible alternatives and the possible clarification or modification of the existing rules.

· On consumption taxes: work on the feasibility of technology-based collection mechanisms, on simplification opportunities, and on means of promoting more effective international administrative co-operation.

· On tax administration issues: work to strengthen the compliance tools available to tax administrations, to share "best practice" and to promote further taxpayer service initiatives. In particular, the FSM Subgroup's continued development of administrative "best practices" including record keeping guidelines, business identification guidelines (improved reliability of Whois information for commercial web sites) and transaction information.

On process, the CFA agreed on the need to continue the dialogue with business and non-member countries, through a reinforcement of the current TAG process and other initiatives to encourage further co-operative international debate.

The next major announcement in OECD thinking on these issues should be announced at an OECD Ministerial meeting on electronic commerce in May 2002.

The ATO's involvement

The ATO, as a member of all OECD TAGs and Sub-Groups on eCommerce, was one of the major drivers in achieving these significant results by the OECD. The ATO will continue to maintain its focus on eCommerce with a view to:

· better understanding e-commerce environment and its impacts for the tax system so that the ATO’s responses are both appropriate and timely;

· influencing and shaping the tax system so that it deals effectively with eCommerce issues;

· developing an integrated and effective compliance strategy so that risks associated with e-commerce are properly treated;

· building the ATO’s internal capability so that staff are capable of managing and shaping the tax system in the new environment; and

· sharing of experiences between the work on the taxation implications of electronic commerce and the work on the ATO’s own electronic commerce interface.

The main vehicle for the ATO’s continued dialogue with the Australian business community has been the Commissioner’s e-Forum. At the November 2001 meeting of the e-Forum it was agreed that specialist topics would be discussed by interested parties between meetings of the full e-Forum. An example of a way in which these specialist discussions might proceed is the industry partnership discussions that GST have established on electronic commerce issues. Details of this partnership is available at www.taxreform.ato.gov.au/ind_partner/eci/ecom.htm

Contact Officer

Michael Atfield
02 6216 5845
16 November 2001

[status][_Toc2051335] Attachment 5 - Initiatives to provide greater practical assistance to tax practitioners – status as at 23 November 2001.

Initiatives to Provide Greater Practical Assistance to Tax Practitioners – Status as at 23 November, 2001.

Initiative

Description

Status

Broadcast February 2001

   

(1) Extend some arrangements for activity statements, income tax lodgments and superannuation surcharge reporting.

(i) 3rd Quarter BAS ~ no GIC or LLP to apply agents who lodge approximately 50% by 28/4/01 (including larger value cases) and lodge balance by 10/5/01.

(ii) Reminder re 2nd Quarter BAS ~ no GIC or LLP to apply to agents who lodge approximately 50% by 4/2/01 (including larger value cases) and lodge balance by 20/2/01.

(iii) Company & Super Funds ~ GIC & LLP remitted where payment & lodgment made by 23/3/01 for medium category taxpayers and by 6/4/01 for small category taxpayers.

(iv) Individual, Trust & Partnerships ~ Agent Programs 1 & 2 extended to 17/5/01 for all tax levels. No change for Provisional Program.

(v) Superannuation Surcharge ~ reports for self-assessing 7 self-managed funds extended from 31/3/01 to 1/6/01 provided payment accompanies lodgment.

Implemented.

Implemented.

Implemented.

Implemented.

Implemented.

(2) Correspondence Issues re PAYG

(i) Introduce enhanced correspondence addressing system by end 2001 calendar year.

(ii) Bulk mail dispatch of quarterly activity statements to reduce agent clerical handling.

(iii) Provide lists of all activity statements issued ~ whether to agents or direct to their clients.

(iv) Provide lists of lodged activity statements.

Improved Management of Client Mail (IM) now in place ~ agent broadcast 29/11.

Implemented.

Implemented ~ available via website since May’01 and via ELS reports ~ client lists, lodgment history & activity statement summaries NOW.

Implemented.

(3) Provide more information about Business Tax Reform.

(i) Develop and make available a ‘road map’ showing what will be available as part of comprehensive package of information re BTAX reform, when and how it can be accessed.

Included in April-May edition of the Agent Newsletter.

Info progressively available via website and Seminar program.

Implementation on-going.

(4) Design & develop a range of service initiatives to provide a more effective & efficient process for practitioners in their interactions with the ATO.

(i) Complex Case Resolution Unit to manage more difficult and/or complex issues experienced by practitioners.

(ii) Secure e-form facility for transactions with the ATO ~ trial in March for ETL requests.

(iii) Increased & enhanced practitioner contact program.

(iv) Practitioner complaints to PRS to be treated with priority.

(v) Enhanced ELS HelpDesk arrangements to provide a more streamlined service.

Established April 2001.

Initial trial not successful ~ preparation underway for additional trial of simplified version.

Implemented ~ including ‘Optimising Technology in Your Practice’ contact program and SES Visit Program.

Implemented.

Implemented.

(5) Telephone Service Review

(i) On-going review of telephone technology and service provision to create a more consistent and high quality service.

Review 13 15 50 completed. New IVR structure operational 26/11/01 (see below).

Review 13 72 86 completed. Rationalisation of contact numbers across all business matters ~ one number from 1/9/01.

Premium Service Initiative implemented ~ practitioners receive priority rating. Achieving 93% service level currently.

Broadcast November 2001

   

(1) Self Help ~ Internet based facilities under development.

(i) Access to lodgment information for the clients of practitioners.

(ii) Access to account information for the clients of practitioners.

(iii) Access to Progress of Assessment details for the clients of practitioners.

(iv) Downloadable calculators ~ focus is to build ATO capability in creating and making available calculators as required by practitioner community.

(v) Integrated interface for RBA to create a more user-friendly product.

(vi) Performance Statistics to be available on the ATO website.

(vii) Provide case managers for practitioners with more than 1000 clients to assist with practice management issues and in delivering the benefits of ‘self-help’ information.

Available now via secure website. Available via ELS reports from Dec’01.

PAYGI information provided via secure website for a period in 2001. Withdrawn in response to security concerns. ATO capability to provide this information remains in place. On-going work on RBA Statement of Accounts will obviate need for this service over time.

Available from 1/7/02.

Scoping commenced.

Scoping commenced.

Scoping completed. ATO capability in place.

Scoping commenced ~ on track for implementation by end 1st Quarter 2002.

(2) Education & Communication ~

(i) Establish mechanisms to coordinate all information & educational materials being sent to practitioners to ensure consistency of advice, high quality products and proper sequencing of the issue of information.

(ii) Providing practitioners with at least one ‘ATO free’ day per week ~ no ATO initiated mail, e-mail or telephone contact. Needs consultation with practitioners but aim is reduce agent burden & increase effectiveness of ATO coordination.

Corporate Gateway Forum & Telephony Reference Group working together to ensur5e more effective coordination of ATO activity across ATOP, CCOM and all Business Lines.

Appropriate protocols being redeveloped.

Consultation via Practitioner Advisory Group to determine viability will commence soon.

(3) Telephone & E-mail services (ATO receives approximately 1.25 million phone calls each year from practitioners).

(i) New technology to provide single entry point for practitioners.

(ii) Develop more effective escalation mechanisms.

(iii) Improved access to client account information.

(iv) Better use of intelligence of systemic issues to improve the overall level of assistance offered to practitioners.

(v) Dedicated & secure e-mail facility for mail received from practitioners and a corresponding phone call out to answer the enquiry.

Gradual integration of Genesys technology. Stage 1 implemented 26/11/01 with new IVR arrangements for 13 15 50 agent help-line.

Process is about developing ATO capability. 2 entry points now ~ ATO will continue to ensure effective channelling of calls & escalation via IVR options. New Phone Card available now that describes these options and aids navigation of the system.

Enhancement of IVR options is on-going as above. Enhancement of navigation tools for practitioners on-going.

Enhancements to RBA Statement of Accounts under development.

Regular internal intelligence reports from CCR noting identified systemic issues made available ATO wide for consideration & action.

Dependent on development of secure e-form. When e-form operational, will trial this initiative.

(4) Registrations ~ Agents & Software Providers.

(i) Improve working relationship between ATO and Software Providers and establish an even more rigorous software registration process.

(ii) ATO is committed to exploring viability of ‘limited license’ agent registrations (for certain return-type preparation only) to assist practitioner community in managing increased workloads.

Software Producers’ Forum established ~ first meeting in October 2001.

On-going.

(5) Preparing for the Future

(i) Continue work to smooth agent lodgment programs and further assist the practitioner community in managing workloads ~ including close attention to BAS lodgment spike and integration of individual lodgment programs.

(ii) Continue the development of customised approaches to enable the tailoring of services offered to practitioners ~ includes segmentation and profiling of the practitioner community to better understand their needs.

(iii) Establish an Advisory Committee (sub-committee of the ATPF plus some other practitioner representatives) to work with the ATO to scope, plan and implement the initiatives listed.

On-going via Lodgment Working Party.

On-going ~ Compliance Executive project commenced.

Implemented.

[project][_Hlt532003286][_Toc2051336] Attachment 6 – Project plan

[treasurer][_Hlt532003275][_Toc2051337] Attachment 7 - [_Hlt531483584] Treasurers press release of 8 October 2001.

NO.078

Deductibility of Travel Expenses

The Government will amend the income tax legislation concerning the deductibility of expenses incurred by taxpayers in travelling between two places of unrelated income earning activity.

Legislative amendment is required as a result of the High Court's decision earlier this year in Commissioner of Taxation v Payne. The Commissioner took action because the pilot's expenses were for travel between his farming property where he lived and also had a business, and the airport where he worked.

In finding that the expenses were not related to deriving income from either activity, the court upheld the Commissioner's view but on broader grounds.

The amendment is necessary to maintain deductibility for relevant expenses incurred in travelling between two places of unrelated income earning activity, to accord with the Commissioner's long held views as expressed in published rulings and TaxPack. For example, the amendment will retain deductibility for expenses of travelling directly from one job to a second job, and also for expenses of travelling from the usual workplace to an alternative workplace and between the alternative workplace and home.

I am informed by the Commissioner that assessments for the year ending 30 June 2001 will be based on his rulings and TaxPack.

The amendment will take effect from the 2001-02 income year.

MELBOURNE
8 October 2001

Contact: David Alexander (02) 6277 7340

[td][_Toc2051338] Attachment 8 - Taxation Determination TD2001/26

Income tax: capital gains: what are the capital gains tax consequences for a beneficiary of a discretionary trust who renounces their interest in the trust?

[EDisclaimer]Preamble

The number, subject heading, date of effect and paragraphs 1 to 8 and 13 to 15 of the Taxation Determination are a ‘public ruling’ for the purposes of Part IVAAA of the Taxation Administration Act 1953 and are legally binding on the Commissioner. The remainder of the Determination is administratively binding on the Commissioner. Taxation Rulings TR 92/1 and TR 97/16 together explain how a Determination is legally or administratively binding.

Date of Effect

This Determination applies to years commencing both before and after its date of issue. However, the Determination does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

1. A renunciation by a beneficiary of an interest in a discretionary trust (the interest being a CGT asset) would give rise to CGT event C2 for the beneficiary because it is an abandonment, surrender or forfeiture of the interest (section 104-25 of the Income Tax Assessment Act 1997 (‘ITAA 1997’)).

2. A beneficiary of a discretionary trust who has no interest in either the assets or the income of the trust before the exercise of any discretion by the trustee as to the allocation of those assets or income can renounce their interest in the trust. In these circumstances, however, any capital gain the beneficiary makes from the renunciation of an interest acquired on or after 20 September 1985 is likely to be nil because its cost base is likely to be nil and the market value of the interest at the time of the renunciation would generally be nil. A capital gain or capital loss made on an interest acquired before 20 September 1985 is disregarded: subsection 104-25(5).

3. A discretionary beneficiary may or may not receive any capital proceeds for renouncing their interest in the discretionary trust. Whether or not capital proceeds are received, the beneficiary will need to determine the market value of the interest under section 116-30 of the ITAA 1997 at the time of the renunciation of the interest. A capital gain may arise if the market value exceeds the cost base of their trust interest.

4. If a beneficiary of a discretionary trust has an interest in either the assets or the income of the trust before or after the exercise of any discretion by the trustee as to the allocation of those assets or income (for example a beneficiary with a default interest) they can also renounce their interest in the trust. In these circumstances, however, a capital gain is more likely to be made by the beneficiary from the renunciation of an interest acquired on or after 20 September 1985 because its cost base is likely to be nil and the interest at the time of the renunciation may have some significant value. Whether the default beneficiary’s interest has any substantial value or not will need to be determined on a case by case basis depending in each case on the terms of the particular trust and its purpose, the past history of distributions made by the trustee in favour of the default beneficiary and all the other circumstances of the particular case.

Background

[IComments][HBody]5. The Social Security Act 1991 and the Veterans Entitlements Act 1986 (‘Social Security Acts’) have been amended by the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000. The amendments, which will affect social security payments from 1 January 2002, provide for the income and assets of private trusts to be attributed to controlling individuals for the purposes of the means testing provisions of the Social Security Acts.

6. An affected beneficiary of a discretionary trust may wish to renounce their interest in the trust. If the beneficiary renounces their interest before 1 January 2002, the Department of Family and Community Services (‘FaCS’) has advised that the beneficiary may avoid the gifting rules within the means testing provisions of the Social Security Acts that will generally apply on and after this date. If the beneficiary renounces their interest on or after 1 January 2002, FaCS has advised that it is likely that the gifting rules will apply.

7. The ATO has been asked to provide guidance on the CGT consequences of a renunciation of the interest in the discretionary trust by the beneficiary in these types of cases.

8. According to the Macquarie Dictionary in its third edition, the word ‘renounce’ means ‘to give up or put aside voluntarily’. The word ‘renounce’ may be used in the sense of a disclaimer or abandonment which results in either a refusal to accept a benefit or extinguishment, without replacement, of an interest held by someone: see the High Court of Australia decision in MSP Nominees Pty Ltd & Anor v. Commissioner of Stamps (SA) (1999) 42 ATR 833; 99 ATC 4937. Re Gulbenkian’s Settlements (No. 2) Stephens & Anor v. Maun & Ors [1970] Ch 408 involved a valid renunciation or disclaimer of an interest in a discretionary trust by a discretionary object. The renunciation operated as an extinguishment of the interest on and from the date of the renunciation.

Example

9. Since 1986, the Jeller family has held farming land in a discretionary trust, Jeller Family Trust. Their private company, Jeller Rural Industries Pty Limited, operates the farming enterprise. Lloyd is the appointor and trustee of the trust. Lloyd, his wife Sue, and their son Paul and his two children, are the beneficiaries of the trust. Sue is the default beneficiary under the terms of the trust. Lloyd and Sue hold the two directors’ shares in the company, and Paul holds all other shares. For some years Lloyd, as trustee, has ensured that Paul receives the bulk of the income of the trust. There is no pattern of distributions from the trust in favour of Sue as default beneficiary. Lloyd and Sue each supplement their income with an age pension.

10. From 1 January 2002 Lloyd and Sue would, because of the operation of the new private trust and companies legislation under the assets tests of the Social Security Acts, lose their entitlement to the age pension. They decide to preserve their pensions and hand over control of the trust and company to Paul. Lloyd and Sue enter into the following arrangements to meet the requirements of a genuine resignation for social security purposes.

(a) In September 2001, Lloyd and Sue each renounce their interests in the Jeller Family Trust by the following renunciation declaration [see Note 4]:

‘I [Lloyd Jeller]/[Sue Jeller] renounce my interest in the Jeller Family Trust and my entitlement to any further benefits from the Jeller Family Trust, whether those benefits be income or capital or of any other nature. I request that the trustee of the Jeller Family Trust recognise my request that I receive no further benefits from the Jeller Family Trust and furthermore recognise that this renunciation of my beneficial interest in the Jeller Family Trust is irrevocable’;

(b) Lloyd resigns as trustee and appointor of the Jeller Family Trust, Paul is appointed trustee and appointor and Lloyd and Sue provide Centrelink with a written declaration that they will not exert any control over or benefit directly or indirectly in any way from the Jeller Family Trust;

(c) Lloyd and Sue sell their shares in Jeller Rural Industries Pty Limited for an amount equal to their market value.

11. Lloyd and Sue receive advice from Centrelink that these transactions are sufficient to satisfy the requirements of a genuine resignation for social security purposes. Centrelink also advise Lloyd and Sue that they will monitor whether Lloyd and Sue continue to act consistently with these undertakings.

12. Lloyd and Sue make no capital gain or capital loss on renouncing their interests in the trust. Sue’s default interest in the trust (which has a nil cost base) is considered on the particular facts to have a nil market value in terms of section 116-30 at the time of the renunciation of the interest. Nor do Lloyd and Sue make any capital gain or capital loss on the changes of trustee and appointor. Lloyd and Sue may make a capital gain on the sale of their shares in Jeller Industries Pty Ltd if the market value of the shares is greater than their cost base. It is possible that assets of Jeller Industries Pty Ltd which were pre-CGT assets before Lloyd and Sue sold their shares in the company stop being pre-CGT assets when the sales occurred because of the operation of Subdivision 149-B of the ITAA 1997.

Note 1:

13. A renunciation by a discretionary beneficiary would not normally have any CGT consequences for the trustee or for the trust. However, an amendment to the trust deed to exclude a beneficiary from the discretionary trust may result in the creation of a new trust with CGT event E1 (about creating a trust over a CGT asset) happening: see section 104-55 of the ITAA 1997. For further discussion on what constitutes the creation of a new trust refer to the statement of principles applied by the ATO titled ‘Changes to trusts leading to the creation of a new trust estate’ which issued on 9 June 1999 (see www.ato.gov.au).

Note 2:

14. A mere change of trustee has no CGT consequences.

Note 3:

15. CGT event H2 in section 104-155 of the ITAA 1997 (about receipts for events relating to CGT assets) could apply if a beneficiary receives money or other consideration because of the renunciation of their interest. However, the effect of the ordering rules in section 102-25 of the ITAA 1997 Act is that CGT event C2 applies rather than CGT event H2.

Note 4:

16. The renunciation declaration used in the Example is provided only for the purposes of the Example. You should seek advice on the form of any renunciation declaration you intend to make because it is not appropriate for the Commissioner to express any opinion about the terms which should be used in a renunciation declaration.

[JSign] Commissioner of Taxation

[KDate]31 October 2001

[LReferences]Previous draft:

Previously released in draft form as TD 2001/D7

Subject references:

[OSubjectRef]- abandonment

- capital gain

- capital proceeds

- CGT event

- CGT event C2

- CGT event E1

- CGT event H2

- creation of a new trust

- discretionary beneficiary

- discretionary trust

- forfeiture

- interest

- interest in a trust

- market value

- means testing

- renounce

- renunciation

- renunciation by discretionary beneficiary

- surrender

- trust

Legislative references:

[PLegrefText]- ITAA 1997 102-25

- ITAA 1997 104-25

- ITAA 1997 104-25(5)

- ITAA 1997 104-55

- ITAA 1997 104-155

- ITAA 1997 116-30

- ITAA 1997 Subdivision 149-B

- Social Security Act 1991

- Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies –

Integrity of Means Testing) Act 2000

- Veterans Entitlements Act 1986

[QLegref]

Case references:

[RCaseRefText]- MSP Nominees Pty Ltd & Anor v. Commissioner of Stamps (SA) (1999) 42 ATR 833; 99 ATC 4937

- Re Gulbenkian’s Settlements (No. 2) Stephens & Anor v. Maun & Ors [1970] Ch 408[SCaseRef]

ATO references: [TATORef]

NO

[TATORef1]T2001/0014148

   

[VISSN]ISSN: 1038-8982

[_Toc2051339] Attachment 9 - [briefingnote] Briefing note: Losses – compliance with continuity of ownership test

Briefing Note

Response to question 19 of the June 2001 NTLG

Losses - Compliance with Continuity of Ownership Test

From: Stephanie Long, Senior Tax Counsel and

Anthony Marvello, Losses Centre of Expertise

Date: 5 June 2001

There are no ATO processes or procedures for determining if companies fail the continuity of ownership tests in Divisions 165 or 166 of the ITAA 1997 other than examining the particular facts and circumstances of each case.

A public company will not fail the relevant continuity of ownership test in Division 165 or Division 166 if it is reasonable to assume that the test is satisfied.

Division 166 of the ITAA 1997 further modifies the way in which the continuity of ownership test applies to a listed public company (and also its 100% subsidiaries), making it easier for a listed public company to satisfy the tests in various circumstances.

The continuity of ownership tests are further modified by the following administrative practice:

1. The practice outlined in Taxation Determination TD 2000/27 in relation to the deduction of losses incurred before the 1996-97 income year by companies whose shares are held by certain discretionary trusts. Special rules have since been enacted for companies wholly or partly owned by discretionary trusts. These rules apply to determine if a company is able to claim a deduction for losses in the 1996-97 and later income years.

2. The administrative practice outlined in Chapter 24 of the Company Assessing Manual in relation to companies limited by guarantee and similar kinds of companies that do not have shares.

The 2001 Losses Schedule does not impose, and it not intended to impose, any greater or different obligations on companies claiming deductions for losses, seeking to carry forward losses or transferring losses. Part B of the schedule simply requires the company to indicate if it has failed the continuity of ownership test but has satisfied the same business test in relation to losses it has deducted or transferred. The company would need to have determined this in order to claim or transfer those losses.

[_Toc535661108][consol][_Toc2051340] Attachment 10 - Consolidated Groups – An update (presentation by Mark Jackson)

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[_Toc535661109][orica][_Hlt2048945][_Toc2051341] Attachment 11 - Report from the CGT Subcommittee meeting of 28 November 2001

Decision in Orica case

In November 1998, the NTLG CGT Subcommittee prepared a paper on the implications of the decision in the Orica Case. This report was tabled at the meeting of the NTLG held on 10 March 1999. It is evident in reports to the NTLG that the CGT subcommittee continued to consider the impact of this case. In the minutes for the NTLG CGT Subcommittee 14 June 2001 at item 6.3, it was noted that the ATO’s position in relation to the application of the Orica Case remained ‘unchanged’ and that the ATO will progress issues ‘as they arise on a case by case basis’. It is also the understanding of the professional bodies that the ATO was considering holding a special summit to discuss the impact of the case in August 2000; this summit never eventuated.

c. In view of the lapse of time since the issue of the original discussion paper and post–Orica developments in the law and ATO’s interpretation of it, and the appeal against the decision in Orica on timing issues, would the ATO please indicate the timeframe within which we can expect a public ruling which will clarify the law in this area?

Response : There are no current plans to issue a taxation determination or a taxation ruling in relation to the recent decision in the Orica case. There have been very few private ruling requests on these issues. Each case depends on its facts, and the ruling requests received to date have not been suitable for discussion in a public ruling.

If a taxpayer has an issue connected with the coming to an end of a right and the taxation implications do not produce the right outcomes in their situation, they should request a private ruling.

d. From a more general perspective, the above question also highlights the problematic relationship between the administration of tax and the need for clarity whilst a tax matter is before a court or tribunal. Would the ATO please advise the professional bodies of its policy in relation to issuing rulings when there is a case before a court or tribunal on a tax matter?

Response : It is not the usual practice of the ATO to issue public rulings when there is litigation before a court or tribunal on a tax matter. Until the outcome of a particular case is known, the ATO will administer the law on the basis of the view being argued for by the Commissioner in the case, even if there is an adverse decision of a court or tribunal against which the Commissioner has appealed.

If, during the course of any litigation, a taxpayer seeks a private ruling on the issue that is being litigated, the private ruling would be issued in accordance with the view being argued for by the Commissioner. This is consistent with the approach that is taken in Taxation Ruling IT 2250 in relation to the issue of assessments when a matter is being litigated before a court or tribunal.